In its annual report, BIS has cast doubts on the functionality of stablecoins as legitimate money in the modern financial landscape, highlighting their clear shortcomings.
Critique of Stablecoins
In its report released on June 24, 2025, BIS pointed out that stablecoins do not meet the three essential criteria of effective money: singleness, elasticity, and integrity. Stablecoins are described as 'digital bearer instruments' that behave more like tradable financial assets than stable, widely accepted currencies.
Risks and Issues
The BIS report cites several significant shortcomings of stablecoins. Firstly, they are privately issued and often fluctuate in value, undermining the principle of singleness. Secondly, their supply mechanics do not allow for flexible response to demand, which leads to a 'cash-in-advance' situation. Lastly, integrity is a major concern: stablecoins are susceptible to illicit use such as money laundering and terrorist financing.
Prospects for Tokenization
Despite the critique of stablecoins, the BIS expresses optimism regarding tokenization, viewing it as a ‘transformative innovation’ that enhances the existing financial system rather than disrupts it.
The BIS report emphasizes the need for stringent regulation and limitations on the use of stablecoins while demonstrating a positive outlook on the possibilities presented by tokenized financial instruments.
