Introduction: BIS Perspective on Stablecoins
The Bank for International Settlements (BIS) released its 2025 Annual Economic Report with significant analysis on stablecoins—highlighting their inability to meet three core monetary standards: singleness, elasticity, and integrity. While BIS acknowledges stablecoins' operational efficiencies in cross-border payments and their technological foundation (tokenization), it concludes they'll remain supplementary rather than mainstream monetary instruments.
Key Takeaways from BIS Findings:
- Stablecoins ≠ Mainstream Currency: Fail to satisfy unified acceptance, flexible issuance, or compliance robustness.
- Tokenization Endorsement: Praised as transformative for financial infrastructure despite skepticism about stablecoins.
- Emerging Risks: Potential impacts on monetary sovereignty, treasury markets, and financial stability.
Why Stablecoins Fall Short as Money
1. Singleness (Unified Acceptance)
- Definition: All forms of currency (e.g., banknotes, deposits) must be universally accepted at par value.
Stablecoin Shortfall:
- Credibility tied to private issuers, not central banks.
- Trading premiums/discounts between stablecoins (e.g., USDT vs. USDC) violate 1:1 parity expectations.
2. Elasticity (Flexible Money Creation)
- Traditional Systems: Banks create money via loans with central bank backing.
Stablecoin Limitation:
- 100% fiat-collateralized reserves restrict liquidity adjustments.
- No "lender of last resort" support forces prefunded transactions, hampering scalability.
3. Integrity (Compliance & Security)
Concerns:
- Anonymity in public blockchains complicates KYC/AML enforcement.
- Potential use for illicit flows due to pseudonymous wallets.
- Data Point: BIS notes >60% of jurisdictions are developing stablecoin-specific AML frameworks.
Additional Risks Highlighted by BIS
| Risk Category | Description | Impact Example |
|---|---|---|
| Monetary Sovereignty | Dollar-pegged stablecoins dominate (99% USD-backed), eroding local currencies. | Emerging markets face de facto dollarization. |
| Treasury Market Volatility | Issuers hold massive U.S. debt—equivalent to large sovereign funds. | 35B+ stablecoin growth may lower Treasury yields by 2.5–5 bps. |
| Financial Contagion | Banks engaged in crypto activities could see traditional lending capacities weaken. | Liquidity crises during mass redemptions. |
👉 Explore how tokenization mitigates these risks
The Reality of Stablecoins
Definition: Privately issued, fiat-collateralized digital shadow money:
- Pros: Efficient cross-border settlements; blockchain-based P2P transfers.
- Cons: Lower trust than central bank money; operational risks (e.g., reserve mismanagement).
Analogy: "Stablecoins are to fiat what email is to postal mail—faster and cheaper, but dependent on the original system’s credibility."
Tokenization: BIS’s Approved Path Forward
Core Components:
- Tokenized Central Bank Reserves
- Commercial Bank Money on DLT
- Programmable Assets (e.g., bonds, commodities)
Benefits:
- Atomic Settlements: Instant, simultaneous trade execution (e.g., DvP).
- Cost Reduction: Eliminates reconciliation delays in跨境 payments.
Case Study: BIS’s Promissa Project digitizes government promissory notes, cutting processing time by 70%.
Policy Recommendations & FAQs
Regulatory Priorities:
- Global Coordination: Prevent regulatory arbitrage via unified AML standards.
- Reserve Transparency: Mandate high-quality liquid assets and regular audits.
- Issuer Licensing: EU/Singapore-style local entity requirements.
FAQs
Q: Can stablecoins replace fiat currencies?
A: No—they rely on fiat reserves ("The shadow can’t exist without the object").
Q: How does tokenization improve securities markets?
A: Enables 24/7 trading and automated repo agreements, enhancing liquidity.
Q: What’s the biggest barrier to stablecoin adoption?
A: Trust deficits versus central bank money and fragmented regulations.