Bank for International Settlements [BIS], known for its anti-crypto stance has called on global banks to raise interest rates “quickly and decisively” to curb inflation before it snowballs. Speaking on the sidelines of its annual meeting, Agustín Carstens, BIS general manager, stated,
“The key for central banks is to act quickly and decisively before inflation becomes entrenched.”
Carstens, former head of Mexico’s central bank, said the BIS doesn’t expect a period of widespread stagflation to take hold in the near term.
While admitting that many global central banks and the BIS itself had grossly underestimated how quickly global inflation has spiraled out of control over the past six to 12 months, the top exec however maintained that “the central banks have responded forcefully in a very agile fashion.”
The latest meeting comes at a time when global markets are engulfed in one of the biggest sell-offs as banking heavyweights like the U.S. Federal Reserve and the ECB ditching lower rates and stimulus measures.
“Crypto Fears Are Coming True”- BIS Report
Last week, BIS has warned that the risks of decentralized digital currency are already materializing. In its recent annual report the Swiss-based institution stated that since November 2021, the entire value of the cryptocurrency industry has been wiped out by more than $2 trillion.
The BIS has outlined its vision for the future monetary system, in which central banks utilize the technological advantages of the blockchain to create digital versions of their own currencies.
According to the report, Bitcoin and its ilk ‘cannot reflect the trust associated with the fiat money circulated by central banks, nor can it assure price stability.’
BIS said crypto assets’ “structural flaws” might act as a roadblock to the ‘soundness of the financial system’. And in its own words,’ cryptocurrencies do not perform money’s basic functions. The recent turmoil in the crypto universe is a reminder of their financial vulnerabilities.’
While calling DeFi a “key development,” the report stated that there is no apparent unison in the settlement system of the DeFi ecosystem and layer-1 blockchains.
Further, the report addressed the recent collapse of the Terra ecosystem and pointed out that the stablecoins are not as stable as they are claimed to be.