BIS chief: stablecoins are not a credible means of payment

The head of the Bank for International Settlements (BIS) openly questions the role of stablecoins as an everyday means of payment. Pablo Hernández de Cos said at the Jackson Hole Economic Symposium that stablecoins do not credibly function as a means of payment on a large scale. Tokenized deposits, in which bank balances are recorded on a blockchain, offer in his view a more convincing alternative for harnessing the benefits of new technology. Reuters reports,

In brief:

• BIS chief De Cos says stablecoins are not a credible means of payment on a large scale
• Tokenized deposits should handle the lion’s share of daily payments
• Stablecoins carry risks for financial stability, monetary sovereignty and anti-money laundering

Stablecoins and tokenized deposits can coexist

De Cos does not completely rule out stablecoins. The two can coexist, but he believes that tokenized deposits should dominate daily payment traffic, while stablecoins remain limited to more specialised applications.

His remarks align with growing concern among central bankers and regulators about financial stability and money laundering risks surrounding stablecoins, especially outside the United States.

Risks for banks and monetary sovereignty

De Cos points to a paradox surrounding the rise of dollar-pegged stablecoins. On the one hand, they can lower governments’ financing costs because demand for US Treasury bonds increases. On the other hand, a shift of bank deposits to stablecoins can raise financing costs for banks, ultimately leading to higher lending rates for ordinary customers.

Furthermore, he cites limited interoperability, meaning the difficulty of getting different stablecoin systems to communicate with each other, and the difficulty of consistently enforcing anti-money laundering rules. He also states that the broad adoption of dollar-pegged stablecoins in some countries can undermine monetary sovereignty and the functioning of local monetary policy.

Tokenized deposits, incidentally, face similar challenges in terms of interoperability, governance and legal issues, De Cos acknowledges. That technology also still has a long way to go before it can be applied on a large scale.