Stablecoins Not Credible for Payments at Scale, Says BIS General Manager

The head of the Bank for International Settlements (BIS) has cast doubt on the viability of stablecoins as a widespread payment method, arguing that bank-issued tokenized deposits represent a more stable foundation for financial innovation. Speaking at the U.S. Federal Reserve's Jackson Hole Economic Policy Symposium, BIS General Manager Pablo Hernandez de Cos outlined several structural flaws he believes prevent stablecoins from functioning credibly at scale.

Key Criticisms of Stablecoins

De Cos detailed a range of concerns with the current stablecoin model, which he said could threaten financial stability. He argued that a large-scale shift of funds from traditional bank accounts into stablecoins could drive up bank funding costs, potentially leading to higher interest rates for regular borrowers.

According to the BIS chief, other significant issues include:

• Breaking the "singleness" of money: Customers often incur costs when switching between different stablecoin products, unlike with traditional currency.
• Lack of interoperability: Stablecoin platforms are often siloed and cannot seamlessly interact with one another.
• Regulatory challenges: Applying consistent and effective anti-money laundering controls across decentralized systems is difficult.

Risks to Monetary Sovereignty

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A primary concern raised by de Cos was the risk of "digital dollarization," particularly for countries outside the United States. He warned that the growing adoption of dollar-pegged stablecoins in other jurisdictions could undermine their monetary sovereignty.

If foreign businesses and consumers shift heavily into U.S. dollar-based stablecoins, it could weaken the effectiveness of domestic monetary policy and tie local economic conditions more closely to external policy decisions, de Cos explained.

Tokenized Deposits as an Alternative

Instead of stablecoins, de Cos advocated for tokenized deposits, which would be issued by commercial banks but exist on a blockchain or similar distributed ledger technology. "Tokenised deposits offer a more direct path to harness tokenisation while preserving the monetary system's foundations," he said.

While he presented this as a stronger option, de Cos acknowledged that tokenized deposits must still overcome their own hurdles related to interoperability, governance, and legal frameworks for settlement. His remarks contrast with a more supportive stance from some officials, such as U.S. Treasury Secretary Scott Bessent, who has previously described stablecoins as a digital revolution that could strengthen the U.S. dollar.