In its newly published annual report, the BIS criticized stablecoins for failing to meet the criteria of sound money, such as singleness, elasticity, and integrity.
Criteria for Sound Money: Singleness, Elasticity, Integrity
The report highlights that stablecoins do not qualify as sound money for the following reasons:
* **Elasticity**: Most stablecoins, such as USDT, require full backing before issuance. This "cash-in-advance" model limits flexibility and fails to dynamically respond to shifts in demand, unlike central bank money, which can adapt supply as needed. * **Singleness**: True monetary singleness means money issued by different institutions should be interchangeable at par. However, stablecoins are often issuer-specific and trade at different values depending on trust and backing. * **Integrity**: Since not all stablecoin issuers apply consistent anti-money laundering (AML) and know-your-customer (KYC) standards, the BIS argues that they undermine the security and legal uniformity required in national monetary systems.
Benefits and Drawbacks of Stablecoins
The BIS acknowledges that stablecoins offer benefits like fast payments, programmability, and accessibility—especially in regions with capital restrictions or high inflation. However, these features do not qualify them as substitutes for traditional money, particularly when weighed against the risks of regulatory fragmentation and financial crime.
Prospects of Tokenization in Finance
While critical of stablecoins, the BIS expressed a more optimistic view on tokenized finance. It sees the tokenization of central bank reserves, commercial bank money, and government bonds as a transformative opportunity to create a next-generation financial system that blends digital innovation with institutional trust.
In conclusion, the BIS report raises important questions about the role of stablecoins in the financial system, emphasizing that despite their advantages, they cannot replace traditional money. By looking toward the prospects of tokenization, BIS suggests considering new opportunities for the financial sector.
