By David Milliken and Huw Jones
LONDON (Reuters) -El Salvador’s decision to make bitcoin legal tender is an “interesting experiment” with a speculative asset that does not pass the test for being a reliable means of payment, a senior global central banking official said on Friday.
The central American country on Wednesday became the first country in the world to adopt bitcoin as its national currency, saying it would help Salvadorans living abroad send remittances home.
“El Salvador, that is an interesting experiment indeed,” said Benoit Coeure, head of the innovation hub at the Bank for International Settlements (BIS).
“We have been clear at the BIS that we don’t see bitcoin as having passed the test of being a means of payments. Bitcoin is a speculative asset and should be regulated at such,” Coeure said at the launch of a regulatory research hub at the Bank of England (BoE).
The comments echo remarks from the International Monetary Fund, which said on Thursday it had economic and legal concerns regarding El Salvador’s move.
El Salvador replaced its national currency with the U.S. dollar in 2001.
Rapid advances in private sector electronic payments and the reduced use of cash, accelerated by COVID-19, have forced central banks to consider developing digital versions of their own legal tender known as central bank digital currencies.
“We need to be at the cutting of technology,” Coeure said. “We have to work with the private sector.”
The BIS is setting up a network of innovation hubs across the world to allow central banks to share information on new payments technology and keep up with private sector initiatives, such as Facebook’s Diem stablecoin.
Stablecoins are cryptocurrencies designed to have a stable value relative to traditional currencies or a commodity such as gold, to avoid the volatility that makes bitcoin and other digital tokens impractical for most commerce.
BoE Governor Andrew Bailey said regulators were cooperating closely over stablecoins’ potential impact on financial stability, and also on developing their own digital currencies.
“If this comes to pass, it will be one of the most fundamental innovations in the history of central banking. It will move us into a new era,” Bailey said.
Earlier this week, financial regulators for major economies proposed tough capital rules for banks holding cryptocurrencies, and Bailey said any stablecoin-based payment system would need to meet the same standards as banks.
(Reporting by David Milliken and Huw JonesEditing by Mark Potter)