The Bank for International Settlements (BIS) has published its blueprint for a future digital monetary system.

In a special chapter of its Annual Economic Report, the financial institution said that a system grounded in a digital representation of central bank money could combine innovation with safety and stability.

The bank suggests creating a two-tiered monetary system, with central bank digital currencies and fast payments systems could “enhancing efficiency and financial inclusion, while buttressing data privacy”.

The report warned that “recent turmoil” in the crypto space has highlighted the vulnerabilities of cryptocurrencies.

The study examines the "structural limitations of crypto and DeFi" and the “inherent risks” in their design.

Instead the BIS calls for a digital version of money issued by the central bank, which it says could provide the same features of crypto and stablecoins with less risk and limitations.

“Innovation is not just a buzzword or latest fashion,” said Hyun Song Shin, economic adviser and head of research at the BIS. “It should never lose sight of the concrete needs of users in the real economy.

“Central banks are seeking to push the frontiers of what is possible, adopting new capabilities while ensuring financial services are stable and interoperable domestically and internationally."

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