BIS chief says stablecoins are not a credible payment method

Investing.com -- The Bank for International Settlements general manager said stablecoins do not function credibly as a payment method at scale, arguing that tokenized deposits present a stronger option for using this technology.

Pablo Hernandez de Cos told the U.S. Federal Reserve's Jackson Hole Economic Policy Symposium in Wyoming that the two instruments could exist together. He said tokenized deposits should handle most daily payments while stablecoins serve more specialized purposes.

Stablecoins are crypto assets designed to maintain stable value. Their rising use has raised concerns about financial stability and money laundering among officials, particularly outside the United States.

U.S. Treasury Secretary Scott Bessent has backed stablecoins, describing them as a digital revolution that could strengthen the dollar's status as the world's leading reserve currency and generate demand for trillions of dollars in Treasuries.

De Cos, who is a candidate to replace European Central Bank President Christine Lagarde next year, outlined several problems with stablecoins.

He acknowledged they could reduce sovereign borrowing costs, as Bessent suggested. Bank funding costs could increase as money moves away from lenders, potentially forcing regular borrowers to pay higher rates, de Cos said.

Stablecoins also break the "singleness" of money because customers cannot switch between products without incurring costs to sell and buy, he said.

Stablecoin platforms lack genuine interoperability and create money-laundering concerns since controls are hard to apply consistently, de Cos said.

"The growing adoption of dollar-pegged stablecoins has also raised concerns in some jurisdictions about monetary sovereignty and the potential for digital dollarization," he said.

If borrowers outside the U.S. shift heavily into dollar-based stablecoins, this could weaken monetary sovereignty, reduce domestic monetary policy effectiveness and link local conditions more closely to external policy positions, de Cos said.

"Tokenised deposits offer a more direct path to harness tokenisation while preserving the monetary system's foundations," de Cos said.

Tokenized deposits still need to address issues around interoperability, governance and legal obstacles, including settlement matters, he said.

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