Stablecoins as a form of sound money fall short, and without regulation pose a risk to financial stability and monetary sovereignty, according to a recent report by the Bank for International Settlements.
The BIS report concluded that tokenization – the technology underpinning stablecoins –can enhance efficiency and open new possibilities in cross-border payments, securities markets “and beyond.” As for stablecoins, they “perform poorly” when assessed against three key tests for money: Singleness, where money can be issued by different banks and accepted without hesitation; elasticity, where money has the flexibility to meet the need for large-value payments; and integrity of the monetary system against illicit activity.
“As digital bearer instruments on borderless public blockchains, stablecoins have been the go-to choice for illicit use to bypass integrity safeguards,” the report concluded on the latter test.
Stablecoins may at best serve a subsidiary role in the financial system, according to the report. “One guiding principle in any such role would be to channel legitimate use cases into the regulated monetary system in a way that does not undermine financial stability nor the proven advantages of the current system.”
