LONDON–At the same time the nation’s biggest banks and some large companies are announcing plans to introduce stablecoins, the Bank for International Settlements has issued a stark warning around what it says are the risks posed by stablecoins, and is urging countries to move rapidly toward the tokenization of their currencies.
The BIS outlined its concerns, including the potential for stablecoins to undermine monetary sovereignty, transparency issues and the risk of capital flight from emerging economies, at the same time the Senate has passed the GENIUS Act, which would create a regulatory framework for U.S.-dollar-pegged stablecoins.
Should the House pass companion legislation, the popularity of stablecoins is expected to surge.
How Coins Work
Stablecoins are a type of cryptocurrency designed to maintain a constant value, usually a 1:1 dollar peg, backed by real-world assets such as U.S. Treasuries or gold.
As the CU Daily has reported, the nation’s biggest bank—JPMorgan Chase—has announced plans for a stablecoin, as have the country’s biggest retailers. In addition, Fiserv has also announced it plans to launch by the end of the year a new Fiserv digital asset platform, including a new stablecoin (FIUSD), that it said will be added to its existing banking and payments infrastructure.
Falling ‘Short’
“Stablecoins as a form of sound money fall short, and without regulation pose a risk to financial stability and monetary sovereignty,” BIS said in a early-released chapter of its annual report.
According to Hyun Song Shin, BIS’ Economic Adviser, stablecoins lack the traditional settlement function provided by a central bank with fiat money.
“Singleness is either you have it or you don’t,” Shin said, adding a warning over what he sees as the risk of “fire sales” of the assets backing stablecoins if they collapse, as some cryptocurrencies have already done.
There is also the concern around who controls stablecoins.
“The whole question of disclosure, this is where some of the stablecoins differ,” BIS Deputy General Manager Andrea Maechler said in a statement. “You will always have the question about the quality of the asset backing. Is the money really there? Where is it?”
Action Urged
The BIS is urging central banks to move to a tokenized “unified ledger” that incorporates central bank reserves, commercial bank deposits and government bonds.
Such a move, according to the BIS, would mean central bank money remains both the primary means of global payment and that currencies and bonds from around the world could effectively be integrated into the same “programmable platform.”
