According to Benoit Coeuré, head of the Bank for International Settlements' (BIS) Innovation Hub, key pillars of today's cryptocurrency sector, such as stablecoins and DeFi, represent a threat to traditional banking.
DeFi, or decentralized finance, is a set of crypto products that imitates many typical financial activities, such as lending and borrowing but replace banks and brokers with lines of code.
“Central banks have a duty to do - deliver price stability and financial stability and they must keep that job.
Central bank digital currencies would take years to develop, whereas stablecoins and crypto assets are currently available, according to Coeuré.
“This makes it much more critical to get started,” he continued.
Coeuré is a keen supporter of central banks and their function in society.
As a result, he favors central bank digital currencies (CBDCs) over stablecoins and other types of cryptocurrencies.
The BIS stated in a study issued earlier this year that stablecoins "try to import credibility by being backed by actual currencies."
According to the research, stablecoins are "only as good as the governance behind the promise of backing."
Coeuré, on the other hand, is not nearly so contemptuous.
“Make no mistake: global stablecoins, DeFi platforms, and major IT businesses will threaten banks' strategies regardless,” he continued.
When it comes to implementing a central bank digital currency, China is often regarded as the world leader.
The digital yuan in China was originally suggested in 2017 and will join the trial stage in April 2020.
As part of the project's testing, the People's Bank of China (PBOC) has airdropped millions of digital yuan to individuals around the country since October of last year.
China intends to expand the use of the digital yuan in February 2022, when visitors flood to the nation for the Beijing 2022 Winter Olympics.
Meanwhile, China's crypto sector has been struck hit after hit, with a crackdown on crypto mining adding to a previously imposed prohibition on crypto trading, which has been in place since 2017.