Bank for International Settlements: Stablecoins do not meet currency standards

The bank for international settlements pointed out in its latest report that stablecoins fail to meet the three key criteria needed to become a pillar of the monetary system: uniqueness, resilience, and integrity.

The institution known as the "bank for international settlements" assessed the next generation of financial technologies in its annual report. The report suggests that while the role of innovations such as stablecoins in the future monetary system is still unclear, they perform poorly in measuring the three ideal characteristics that sound monetary arrangements should possess, and therefore cannot become the core of the future monetary system.

The report acknowledges that stablecoins do have some advantages, such as programmability, quasi-anonymity, and user-friendly access for new users. In addition, their technological features may bring lower costs and faster transaction speeds, especially in the field of cross-border payments.

However, compared to currencies issued by central banks and instruments issued by commercial banks and other private entities, stablecoins may pose risks to the global financial system by undermining government monetary sovereignty (sometimes through covert dollarization) and fostering illicit activities.

Although stablecoins play an important role in the cryptocurrency ecosystem and are increasingly popular in countries with high inflation, capital controls, or difficulty accessing dollar accounts, these assets should not be viewed as equivalent to cash.

Detailed Explanation of Three Key Criteria

1. Elasticity: Taking a well-known stablecoin as an example, it is backed by "nominally equivalent assets," and any additional issuance requires full prepayment from the holders, which imposes a "prepaid cash constraint." Unlike central bank reserves, this mechanism limits its elasticity.

2. Uniqueness: Stablecoins are typically issued by centralized entities, which may set different standards and may not always provide the same settlement guarantees. The report states: "Holders of stablecoins will label the name of the issuer, much like the private banknotes that circulated during the 19th-century American free banking era. Therefore, stablecoins are often traded at different exchange rates, undermining the uniqueness of the currency."

3. Integrity: Stablecoins also have "significant flaws" in promoting the integrity of the monetary system, as not all issuers adhere to standardized KYC and AML guidelines, and they are unable to effectively prevent financial crimes.

The Potential of Tokenization

Despite concerns about stablecoins, the bank for international settlements remains positive about the potential of tokenization, viewing it as a "revolutionary innovation" in areas ranging from cross-border payments to the securities market.

The report points out: "A tokenization platform centered on central bank reserves, commercial bank currencies, and government bonds can lay the foundation for the next generation of currency and financial systems."

After the release of this report, the stock price of a certain stablecoin issuer fell by more than 15% the next day. The day before, the company's stock had hit an all-time high, increasing by more than 600% compared to its initial public offering price.