Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos delivered a blunt statement at the Jackson Hole symposium on August 28. He emphasized that stablecoins cannot yet function as credible large-scale payment instruments due to three practical technical shortcomings.
The first weakness lies in the singleness of money, where stablecoins have proven not always redeemable one-to-one with their pegged fiat currencies. The second obstacle arises in interoperability, as cross-network asset transfers consistently require intermediaries like bridges or wrapped assets. Finally, de Cos underscored the fragility of financial integrity caused by the complexities of enforcing anti-money laundering regulations when transactions occur on public blockchain networks.
The Case for Tokenized Deposits
Instead, de Cos argued that tokenized bank deposits provide a far stronger foundation for building future programmable payment systems. This approach is seen as preserving the continuity of the monetary system without disrupting the existing financial architecture. He stressed that he was not calling for an outright ban on stablecoins, noting that both could coexist in the market provided regulators clearly define their respective roles with absolute clarity.
Uniform international regulatory consensus appears far from realized. A recent study by the BIS-affiliated Financial Stability Institute compared stablecoin regulations across the United States, European Union, United Kingdom, Hong Kong, and Singapore, highlighting substantial supervisory disparities among jurisdictions. A separate BIS modeling exercise also showed that the overall economic impact of these crypto instruments remains moderate, depending heavily on reserve asset composition and whether market demand is domestic or cross-border.
Dual Impact on Financial Stability
The rise of stablecoins brings conflicting consequences for the financial system. De Cos explained that while these instruments have the potential to lower government borrowing costs, their proliferation directly threatens the viability of smaller banks by draining low-cost customer deposits, which serve as their primary source of funding.
Amid the BIS’s skepticism, the United States is moving ahead to establish legal clarity. The GENIUS Act, set to take effect in July 2025, mandates payment stablecoin issuers to strictly maintain one-to-one asset reserves. U.S. Treasury Secretary Bessent quickly welcomed the new framework, calling it a revolution in the digital finance sector.
For retail crypto market participants, the remarks from Jackson Hole underscore the true competitive landscape. The ambition to break into mass payment systems faces not only technical limitations of blockchain networks, but also direct competition from monetary authorities that are now firmly backing tokenized products from conventional banks. Source: crypto.news.
Also read: What Is DeFi (Decentralized Finance)?
Previously: BIS Chief Rules Out Stablecoins as Large-Scale Payment Tool - Household Loan Rates at Stake
Disclaimer: This article is for informational and educational purposes only, not financial advice. Cryptocurrency assets are highly volatile and carry significant risk. Always do your own research (DYOR) and never invest more than you can afford to lose.
