BIS chief says stablecoins fail test as payments at scale, pushes tokenized deposits instead

Stablecoins are unlikely to serve as a credible foundation for large-scale payments, while tokenized deposits could offer a safer way to bring blockchain-based technology into the financial system, according to Pablo Hernandez de Cos, general manager of the Bank for International Settlements.

Speaking at Jackson Hole, de Cos said stablecoins and tokenized deposits could coexist, but argued that tokenized deposits should account for the majority of day-to-day transactions. He highlighted a range of shortcomings with stablecoins, including the potential to disrupt bank funding by pulling money away from commercial lenders.

Although stablecoins could increase demand for sovereign debt and potentially lower government borrowing costs, de Cos said banks could face higher funding costs that would ultimately be passed on to borrowers.

The BIS chief also argued that stablecoins challenge the “singleness” of money, since users may have to buy and sell different products rather than move freely between them at no cost. Stablecoin networks remain insufficiently interoperable, while their cross-border nature can make money-laundering controls harder to apply consistently, he warned.

Dollar-backed stablecoins pose an additional concern for countries outside the US, de Cos said. Widespread adoption could accelerate digital dollarization, weakening monetary sovereignty and reducing the effectiveness of domestic monetary policy as local users become more exposed to US monetary conditions.

By contrast, de Cos said tokenized deposits offer a more direct way to gain the benefits of tokenization while preserving the existing monetary system. Still, he said tokenized deposits are not without challenges, with interoperability, governance and legal questions around settlement remaining unresolved.