"General objective central bank digital currencies could revolutionize the way money is provided and the role of central banks in the financial system", said Coeure. But at the same time, it warned that cryptocurrencies might destabilize traditional lenders if offered widely to the general public.
Jacqueline Loh, chair of the markets committee at the BIS, said: "A general goal central bank digital currency could impact bank deposits, a major source of funding for commercial banks, with implications for financial stability".
The Basel, Switzerland-based BIS cautioned that much more "experimentation and experience" would be needed before the introduction of central-bank digital currencies, or CBDCs, could even be considered.
The BIS report was released ahead of the G20 summit in Buenos Aires on March 19-20, where the topic of crypto regulation is on the agenda. Two committees at the BIS, which have members from the U.S. Federal Reserve and European Central Bank are concerned for central banks issuing their own CBDC or central bank digital currency. Although the Riksbank in Sweden, where the use of cash has fallen, is studying a retail e-krona for small payments.
Mark Carney, the Governor of the Bank of England, who is also chair of the BIS global economy meeting and of the Financial Stability Board, said that while a central-bank digital currencies needed careful consideration, a more immediate priority is how to use the new technologies to meet the current demand for fully reliable, real-time payments.
Research from the Bank of Canada suggests a central bank digital currency (CBDC) has the potential to become a cheaper and easier to use alternative to cash and cards.
Coeure said that no central bank has so far made a decision to issue a cryptocurrency.
The appeal of a such a currency would be more pronounced if it were interest-bearing.
The Financial Stability Board, the G20's regulatory watchdog headed by Carney, will report on the private cryptocurrencies.
The BIS also highlighted that, like banknotes, digital currencies can fall victim to illegalities-as a direct target or a means of transaction.
The BIS urged central banks to continue their studies of digital innovations and also consider the implications of not issuing CBDCs.
Coeure indicated on a conference call with reporters that the initiative to regulate private cryptocurrencies, led by Germany and France, probably won't immediately result in concrete action. The Fed's Powell said previous year that "governance and risk management will be critical" for cryptocurrencies.
Whether cryptocurrencies like bitcoin are a fad or here to stay, the launch of digital currencies by central banks around the world could threaten worldwide financial stability, the Bank for International Settlements (BIS) has warned in a new report.
"Arguably, the most significant and plausible financial stability risk of a general objective CBDC is that it can facilitate a flight away from private financial institutions and markets towards the central bank".