BIS: El Salvador’s adoption of Bitcoin as legal tender is an “interesting experiment”

Benoit Coeure, head of the Bank for International Settlements (BIS) Innovation Hub, said on Friday that El Salvador's decision to make bitcoin legal tender is an "interesting experiment" with a speculative asset that does not pass the test of being a reliable means of payment, Reuters reported.

Speaking at the launch of a regulatory research centre at the Bank of England (BoE), Coeure said: "We have always been clear that we do not believe that bitcoin has passed the test as a means of payment. Bitcoin is a speculative asset and should be regulated."

The comments echoed those of the International Monetary Fund, which said on Thursday it had economic and legal concerns about El Salvador's move.

The rapid development of electronic payments in the private sector and the decline in cash use, driven by the pandemic, have forced central banks to consider developing digital versions of their own fiat currencies, namely central bank digital currencies (CBDCs).

"We need to be at the forefront of technology," Coeure said, "and we have to work with the private sector."

The BIS is building a network of innovation hubs around the world for central banks to share information on new payments technologies and keep up with private sector initiatives such as Facebook’s Diem stablecoin.

Stablecoins are cryptocurrencies that are designed to have a stable value relative to traditional currencies or commodities such as gold, in order to avoid the volatility that makes Bitcoin and other digital tokens unattractive to most commerce.

Bank of England Governor Andrew Bailey said regulators are working closely on the potential impact of stablecoins on financial stability and are also developing their own digital currencies.

"If this were to happen, it would be one of the most fundamental innovations in the history of central banking. It would usher in a new era," Bailey said.

Earlier this week, financial regulators in major economies proposed strict capital rules for banks holding cryptocurrencies, and Bailey said any stablecoin-based payment system would need to meet the same standards as banks.