Stablecoins not a credible means of payment at scale, BIS chief says

Pablo Hernandez de Cos, the chief of the Bank for International Settlements, has stated that stablecoins are not a reliable means of payment on a large scale, and tokenized deposits present a more promising option to leverage the advantages of this new technology. Stablecoins are crypto assets engineered to maintain a steady value, but their rising popularity has raised concerns about financial stability and money laundering among prominent officials, particularly outside the United States.

U.S. Treasury Secretary Scott Bessent has endorsed stablecoins, asserting they represent a digital revolution that could strengthen the dollar's status as the world's primary reserve currency and generate demand for trillions of dollars' worth of Treasuries.

During the U.S. Federal Reserve's Jackson Hole Economic Policy Symposium in Wyoming, de Cos, also a candidate to replace European Central Bank President Christine Lagarde, argued that tokenized deposits should dominate day-to-day payments, while stablecoins should serve specialized purposes. He outlined several issues with stablecoins, such as the potential to lower sovereign borrowing costs, but could result in higher bank funding costs as funds are diverted from lenders and ordinary borrowers may face higher rates.

Moreover, stablecoins erode the "singleness" of money, as customers cannot switch between products without incurring costs for selling and buying.

De Cos also highlighted that stablecoin platforms are not genuinely interoperable, and they raise money-laundering concerns due to the difficulty of applying controls consistently. The increasing adoption of dollar-pegged stablecoins has sparked worries in some jurisdictions about monetary sovereignty and the potential for digital dollarization.

If ordinary borrowers outside the U.S. gravitate towards dollar-based stablecoins, it could weaken monetary sovereignty, undermine domestic monetary policy transmission, and more closely align local conditions with external policy stances, de Cos warned. Tokenized deposits, however, offer a more straightforward route to harness tokenization while maintaining the monetary system's core principles, de Cos concluded.

Nonetheless, tokenized deposits must address interoperability, governance, and legal challenges, including those related to settlement.