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Crypto Crunch Time

The likelihood that the world’s major central banks will sooner or later issue their own digital currencies has brought increased scrutiny of the sector’s existing private players. Sooner or later, cryptocurrency enthusiasts who have long argued that politicians would never dare to regulate Bitcoin and the rest will need to think again.

In this Big Picture, former Greek finance minister Yanis Varoufakis argues that Bitcoin-like central-bank digital currencies (CBDCs) would make money more secure, transparent, and democratic. But Johns Hopkins University’s Anne O. Krueger, while noting CBDCs’ potential financial-inclusion benefits, urges policymakers to address several foreseeable risks before introducing them.

Yet, CBDCs may nonetheless be a safer bet than private cryptocurrencies. Barry Eichengreen of the University of California, Berkeley, warns that US dollar-linked digital stablecoins are more likely to destabilize than revolutionize financial markets. Likewise, Katharina Pistor of Columbia Law School describes Facebook’s failure to launch a global digital stablecoin as a premature and ill-designed attempt to challenge the monetary powers that be.

That hasn’t stopped even some sovereigns from trying. Paola Subacchi of the University of London’s Queen Mary Global Policy Institute explains why El Salvador’s recent decision to adopt Bitcoin as legal tender alongside the US dollar threatens to do more harm than good. And Harvard University’s Kenneth Rogoff spells out some of the main risks, arguing that cryptocurrencies’ role in enabling recent ransomware attacks, and facilitating the global underground economy more generally, could finally jolt regulators into action.

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