BIS chief criticizes stablecoins: Not credible as payment instruments
BIS General Manager says stablecoins aren't reliable for mass payments and proposes tokenized deposits as a better alternative.
1BIS warning on stablecoins
Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos stated that stablecoins lack credibility as payment instruments at scale. De Cos suggested tokenized bank deposits offer a more robust alternative. This declaration comes as global regulators grapple with stablecoin adoption. A new study by the BIS-linked Financial Stability Institute (FSI) revealed significant differences in stablecoin issuer regulations across major markets.
2Major regulatory disparities
The FSI study published on Thursday compared stablecoin regulations in the US, European Union, UK, Hong Kong and Singapore. It found substantial differences in which entities can issue stablecoins and what other business activities they can conduct. The US and Singapore take relatively restrictive approaches toward non-bank issuers. Under the US GENIUS Act, payment stablecoin issuers are generally prohibited from lending, staking, proprietary trading and custody of third-party crypto assets.
3More flexible approaches
Hong Kong, the UK and EU adopt less restrictive approaches, permitting some additional activities with separate authorization or regulatory consent. Researchers also found that restrictions in all five jurisdictions apply to the issuing entity rather than the wider corporate group. This means other group members can conduct activities that the stablecoin issuer itself cannot perform.
4Double-edged impact on consumers
Hernández de Cos acknowledged stablecoins could reduce government borrowing costs - an argument also made by US Treasury Secretary Scott Bessent. However, he noted this effect could be double-edged for consumers. If customers shift bank deposits into stablecoins, banks might face higher funding costs and pass these expenses to households and businesses through increased borrowing rates.
5Dollar-pegged stablecoin risks
De Cos also highlighted limited interoperability between stablecoin platforms and challenges in consistently applying anti-money laundering controls. He warned that growing use of US dollar-pegged stablecoins outside the US could undermine monetary sovereignty and weaken domestic monetary policy, posing significant risks particularly for emerging economies.
6Advantages of tokenized deposits
The BIS chief argued that tokenized deposits offer a more direct path to harness tokenization while preserving monetary system foundations. Tokenized deposits are seen as a middle ground between central bank digital currencies (CBDCs) and stablecoins. This system aims to leverage existing financial infrastructure while offering digital asset advantages.
7Need for global regulation
The FSI study findings underscore the need for a globally coordinated regulatory framework for stablecoins. Regulatory differences between major economies could create arbitrage opportunities and increase financial stability risks. BIS officials stress international coordination is crucial to manage stablecoins' potential risks.
8Future of the financial system
BIS's stablecoin criticisms and tokenized deposit proposal contribute to ongoing debates about digital assets' role in the financial system. As central banks and regulators try to balance innovation with stability, stablecoins' long-term effects remain uncertain. These developments could represent a critical turning point in shaping the future of global financial architecture.