BIS Declares Stablecoins as Unreliable Money Amidst Concerns Over Financial Integrity

Stablecoins fail to meet three essential criteria: «unity,» «elasticity,» and «integrity,» as stated in a report by the Bank for International Settlements (BIS).

The BIS refers to these assets as «digital instruments on demand,» which resemble financial assets more than traditional money. Unlike central bank-issued currency, «stablecoins» are issued by private entities, and their value can fluctuate. This instability contradicts the principle of «unity of money.»

The second criterion, «elasticity,» highlights that the issuance of new stablecoins requires full prepayment from holders. This rigid model lacks the flexibility to absorb shocks and meet the demands for large transactions. Central bank systems can provide liquidity as required.

Furthermore, the BIS believes that the structure of stablecoins exposes them to financial crimes, violating the third principle of «integrity.» This is particularly the case for transactions conducted through non-custodial wallets on public blockchains, which have been linked to money laundering, sanctions evasion, and terrorism financing.

Despite acknowledging the demand for stablecoins due to their ease of use for cross-border transfers and low transaction fees, regulators believe their role should be limited and tightly regulated.

In contrast to their criticism of stablecoins, the report praised the concept of tokenization. The BIS termed it a «transformational innovation» that will complement rather than replace the existing financial framework.

Members of the cryptocurrency community expressed that the negative assessment was not unexpected, reminding that the BIS operates as a regulatory body for global central banks.

Jim Walker, the chief economist at Aletheia Capital, characterized the BIS’s stance as «hysterical» and questioned the reliability of central banks themselves, referencing their historical failures.

It’s worth noting that experts have cautioned about a potential bubble in the stablecoin market. They believe that a successful listing of Circle will trigger a wave of initial public offerings (IPOs) from mimic companies.