If digital currencies are needed, central banks should be the ones to issue them, the Bank for International Settlements (BIS) said on Wednesday.

In a speech at the Hoover Institution policy seminar, BIS general manager Agustín Carstens warned of the “serious governance concerns” around private entities issuing cryptocurrencies like bitcoin and stablecoin.

“Sound money is central to our market economy, and it is central banks that are uniquely placed to provide this,” he said.

Both the Bank of England (BoE) and the European Central bank are exploring the possibility of launching their own digital currencies.

The BIS general manager said that investors must also be aware that Bitcoin “may well break down altogether.”

Carstens’ remarks come days after BoE governor Andrew Bailey said that existing cryptocurrencies do not have a structure that is likely to work as a payment alternative over the long term.

Bitcoin poses as its own unit of account, but fluctuations in value mean its unrealistic to set prices in the cryptocurrency.

This undermines its usefulness as a means of exchange, and makes it a poor store of value, explained Carsten.

He also suggested there had been research evidence on price manipulation.

“Bitcoin needs a hugely energy-intensive protocol, called “proof of work”, to safely process transactions,” he said. “Currently, so-called miners sustain the system’s security, and are rewarded with newly minted coins.

He added: “A sad side effect is that the system uses more electricity than all of Switzerland. In the future, as Bitcoin approaches its maximum supply of 21 million coins, the “seigniorage” to miners will decline.”

This means wait times will increase and the system will be increasingly vulnerable to the “majority attacks” that are already plaguing smaller cryptocurrencies.

He said that while stablecoins like Facebook’s Libra, recently renamed Diem, are more credible than Bitcoin, overall they cannot serve as the basis for a sound monetary system.

“There may yet be meaningful specific use cases for stablecoins,” he said. “But to remain credible, they need to be heavily regulated and supervised.

He added: “They need to build on the foundations and trust provided by existing central banks, and thus to be part of the existing financial system.”

He warned that there were still serious governance concerns if a private entity like the social media platform issues its own currency and is responsible for maintaining its asset backing.

According to him, there are historical examples that show there may be strong incentives to deviate from an appropriate asset backing, such as pressure to invest in riskier assets to achieve higher returns.

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