BIS General Manager Says Tokenized Deposits Beat Stablecoins for Digital Payments

Bank for International Settlements General Manager Pablo Hernández de Cos stated on Aug. 28 that tokenized deposits have a higher likelihood of fulfilling the money role compared to stablecoins during a speech at the Federal Reserve Bank of Kansas City's Jackson Hole Economic Symposium. De Cos explained that while both technologies employ tokenization, they differ in terms of the monetary system.

One key distinction is that stablecoins lack a mechanism to enforce singleness, meaning redemption at par into central bank money is not guaranteed. Additionally, stablecoin transactions may not occur at par when one type must be traded on a secondary market for another, de Cos further elaborated. In contrast, tokenized deposits are account-based bank liabilities with interbank settlement via central bank accounts, preserving singleness.

Regarding interoperability across instruments and platforms, stablecoins may encounter challenges when used across different chains without complex workarounds. Tokenized deposits, while typically circulating on permissioned platforms that are not genuinely interoperable, could become more fungible and interoperable if tokenized central bank reserves are introduced as a safe settlement asset.

In terms of financial integrity, tokenized deposits, being account-based and supervised, present a more manageable challenge for enforcing anti-money laundering and counter-terrorism financing (AML/CFT) rules compared to self-custodied stablecoin balances that are increasingly transferred between wallets. De Cos emphasized that these differences do not determine the ultimate outcome but indicate that stablecoins, in their present form, do not fulfill the foundational properties of money.

He concluded that tokenized deposits present a more direct route to embracing tokenization while preserving the monetary system's foundations. The next step, according to de Cos, is to address the practical challenges of scaling this up.