Stablecoins are increasingly being utilized in international remittances, crypto trading, and digital payments. However, the Bank for International Settlements (BIS) harbors doubts about their capacity to serve as a comprehensive foundation for mass settlements. According to the organization’s leadership, such assets still face a range of systemic limitations, while tokenized bank deposits could emerge as a more robust alternative.
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BIS General Manager Agustín Carstens has stated that stablecoins currently do not appear to be a sufficiently convincing means of payment for widespread adoption. He suggests that tokenized deposits offer a way to leverage the benefits of blockchain and digitalization without undermining the fundamental principles of the traditional monetary system.
Concurrently, the BIS acknowledges the potential advantages of stablecoins. Notably, they could contribute to reducing the cost of government borrowing through increased demand for government bonds, which are often used as reserve collateral for these assets.
However, a mass migration of users from bank deposits to stablecoins could introduce new risks to the banking system. If banks experience a depletion of their deposit base, they would face higher costs in securing market funding. This, in turn, could lead to an increase in lending rates for individuals and businesses.
Another ongoing challenge is the insufficient interoperability between different stablecoin platforms and networks. Furthermore, regulators find it difficult to consistently and effectively apply anti-money laundering requirements.
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BIS also expresses particular concern regarding the proliferation of dollar-denominated stablecoins outside the United States. In countries where these assets become widely used for daily transactions and savings, it could potentially diminish the role of the national currency and reduce the effectiveness of the central bank’s monetary policy.
Against this backdrop, regulators across different jurisdictions have yet to establish a unified approach to stablecoins. A recent study by the Institute for Financial Stability has revealed significant discrepancies in regulations across the US, EU, UK, Hong Kong, and Singapore. The US and Singapore impose stricter limitations on non-bank issuers, whereas companies in the EU, UK, and Hong Kong can obtain specific licenses for additional types of activities.
Stablecoins have already become an integral part of the digital financial infrastructure. However, their transformation into a fully functional global payment instrument will necessitate considerably greater standardization and clearer regulation. The primary discussion now revolves not around whether stablecoins will remain in the market, but rather about the specific role they will play alongside bank deposits, central bank digital currencies, and other forms of tokenized money.
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Source: Cointelegraph.