The Bank for International Settlements (BIS) has released a report addressing significant risks posed by stablecoins and their impact on the future monetary system.
Role of Stablecoins in the Financial System
The BIS report states that stablecoins fail essential tests for sound money, including singleness, elasticity, and integrity. BIS Economic Adviser Hyun Song Shin compared stablecoins to 19th-century U.S. private banknotes, noting their lack of a traditional central bank settlement function and potential for varying exchange rates depending on the issuer.
Issues and Risks of Stablecoins
The inability of stablecoins to maintain a consistent value undermines their reliability as a money substitute, stressing the need for robust regulations. Hyun Song Shin stated, "Stablecoins, as digital bearer instruments, lack the traditional settlement function provided by a central bank with fiat money. They could only trade at varying exchange rates depending on the issuer. This undermines the no-questions-asked principle of central bank-issued money."
Future of Stablecoins
Immediate effects of these findings could include increased regulatory scrutiny and pressure on stablecoin issuers to enhance transparency and resilience. The BIS's stance may also influence future discussions on central bank digital currencies. Looking ahead, stablecoins could still attract demand as niche financial tools, but their systemic role remains ultimately questionable.
The BIS report highlights the need for effective regulations concerning stablecoins to prevent financial crises and safeguard monetary stability.
