BIS chief says stablecoins are not a credible payment method

Pablo Hernandez de Cos, general manager at the Bank for International Settlements, has stated that stablecoins are not a reliable method for making payments at a large scale. Instead, he proposes tokenized deposits as a more effective use of this technology. De Cos made these remarks during the U.S. Federal Reserve's Jackson Hole Economic Policy Symposium in Wyoming.

He suggested that while both stablecoins and tokenized deposits could coexist, tokenized deposits should handle the majority of daily transactions. Concerns about stablecoins include their impact on financial stability and potential for use in money laundering, particularly outside the United States. U.S. Treasury Secretary Scott Bessent has expressed support for stablecoins, viewing them as a digital evolution that could bolster the dollar's role as the world's primary reserve currency and stimulate demand for U.S. Treasuries.

De Cos highlighted several issues with stablecoins, such as potential reductions in sovereign borrowing costs, increased bank funding costs due to money flowing away from lenders, and the lack of interoperability among stablecoin platforms, which could lead to additional costs for customers switching between products. Additionally, stablecoin platforms raise concerns about money laundering due to the difficulty in applying controls consistently.

De Cos also warned that the increasing use of dollar-pegged stablecoins could threaten monetary sovereignty and weaken the effectiveness of domestic monetary policy, as borrowing outside the U.S. might shift towards dollar-based stablecoins. Tokenized deposits, according to De Cos, present a more straightforward route to leverage tokenization while maintaining the core principles of the monetary system.

However, he acknowledged that tokenized deposits still need to overcome challenges surrounding interoperability, governance, and legal hurdles, including settlement matters.