Agustín Carstens, the new head of he Bank for International Settlements (BIS), said virtual cash, especially bitcoin, is “pretend currency” and a “Ponzi scheme” which could undermine trust in traditional banks unless it is strictly regulated.
Signalling a global crackdown, he called on central banks to step in and impose stricter rules on the sale and transfer of cryptocurrencies.
Mr Carstens, speaking at Goethe University in Frankfurt, Germany, said: “Central banks must be prepared to intervene if necessary.
“The meteoric rise of cryptocurrencies should not lead us to forget the important role that central banks play as administrators of public trust.”
He insisted “private digital coins that disguise themselves as currencies” should not undermine this trust.
For this reason, he said, central banks must not give the likes of bitcoin credibility by allowing them to use the same financial infrastructure used by traditional banks.
The Swiss-based BIS is made up of sixty central banks from the world’s leading economies, including the UK, United States, China, Japan and Germany.
Mr Carstens, who served as governor of the Bank of Mexico for nearly eight years, said new technology which allowed for quicker, more secure payments was promising.
But he added new currencies were not required to push the technology forward.
Singling out bitcoin, he criticised its “strong price fluctuations, high transaction costs and lack of consumer protection” as reasons why cryptocurrencies an unsuitable and unsafe replacement for traditional money.
And he said while bitcoin may have been designed with the goal of providing an alternative payment system not controlled by government, it had become “a combination of speculative bubble, Ponzi scheme and environmental catastrophe”.
Bitcoin slumped in price yesterday after weeks of falling from its peak value of nearly £14,300 ($20,000) in mid-December.
The cryptocurrency’s fall was spurred on by a chaotic few days of trading on global stock markets, which plunged in value on Monday.
One bitcoin could be had for $6,100 yesterday afternoon, according to Coinmarketcap.
The price has since recovered slightly, with bitcoin worth $8,209 as of 2.33pm GMT.
(Additional reporting by Monika Pallenberg.)