NextFin News - Stablecoins are not a credible means of payment at scale, Bank for International Settlements General Manager Pablo Hernández de Cos said on 28 August, arguing that the bulk of everyday payments and wholesale settlement should instead migrate to tokenised bank deposits that settle in central bank money.
Speaking at the Federal Reserve's Jackson Hole Economic Policy Symposium in Wyoming, the head of the forum for the world's central banks delivered a four-part indictment of stablecoins: they fail the test of monetary "singleness," they are fragmented across incompatible blockchains, they are difficult to police for money laundering, and their rapid growth could destabilise bank funding and money markets. The verdict sets up a direct clash with the US policy trajectory, where the GENIUS Act — signed into law in July 2025 — has legitimised payment stablecoins as a Treasury-backed asset class and fuelled industry forecasts of a multi-trillion-dollar market by 2030.
The BIS Case Against Stablecoins: Singleness, Interoperability, Integrity
Hernández de Cos anchored his argument in a definition of money that is institutional rather than technological. Money, he argued, is an institutional achievement, not a technology. In the speech's most quoted line:
Money is more than a technology; it is an institutional achievement. It coordinates economic activity at scale because it is accepted "with no questions asked" as the final settlement of obligations.
Two properties underpin that achievement: a common unit of account, and what central bankers call the "singleness of money" — the guarantee that every instrument denominated in a unit is redeemable at par into central bank money, with finality.
On singleness, stablecoins fail by design. If a payer holds Tether's USDT but the payee accepts only Circle's USDC, the transfer requires selling one token and buying the other in a secondary market where "deviations from par ... are the norm – and sizeable under stress." There is no mechanism that enforces par. Tokenised deposits avoid the problem entirely: they are account-based bank liabilities recorded on a programmable platform, with interbank settlement flowing through central bank accounts in the background. Par is preserved because the settlement asset is central bank money.
Interoperability is the second fracture. Most fiat-referenced stablecoins circulate as bearer-like instruments on public, permissionless blockchains, yet those chains are fragmented across base networks and scaling layers. Even the "same" stablecoin on different chains is not interoperable without risky or costly workarounds. Tokenised deposits typically run on permissioned platforms that are also not genuinely interoperable — but the introduction of tokenised central bank reserves as a safe settlement asset makes them fungible across banks. In other words, the fix for fragmentation is not more bridges; it is a common settlement layer.
The third charge is financial integrity. The pseudonymity of public blockchains, combined with significant activity in self-custodied wallets, complicates enforcement of anti-money-laundering and counter-terrorist-financing rules. The BIS chief noted that a rising share of transfers occurs wallet-to-wallet, outside venues with know-your-customer checks — the opposite of traditional money, where the least anonymous form, bank deposits, dominates. The integrity challenge, he argued, is manageable in the account-based, supervised environment of tokenised deposits.
The Macro-Financial Stakes: Bank Funding, Runs, and Dollarisation
Beyond the mechanics of payments, the BIS sees a larger threat to the two-tier monetary system. The macro-financial impact of stablecoin adoption at scale depends critically on what issuers hold as reserves — wholesale bank deposits, short-term government bills, or central bank reserves. Each choice transmits differently into the real economy. If issuers sweep deposits out of banks into Treasury bills, bank funding costs rise and credit provision tightens; if they hold central bank reserves, issuers could become a stress-time safe haven, pulling sizeable flows out of the banking sector exactly when liquidity is scarce.
There is also run risk. Stablecoin issuers invest in a narrow set of high-quality, liquid assets, but unlike banks they lack the backstops that underpin trust in deposits. If redemptions accelerate, fire sales of government bills or sudden withdrawals of issuer deposits could impinge on core money markets and spread through the system. The BIS Annual Economic Report 2026 quantifies the asymmetry: stablecoin market capitalisation was around $320 billion as of end-May 2026, dwarfed by roughly $8 trillion in US bank deposits alone. Adjusted annual stablecoin transaction values are closer to $390 billion — less than 1% of total payment value, and a fraction of the roughly $2.2 trillion that the Clearing House Interbank Payments System clears and settles each business day.
The cross-border dimension cuts the other way. Hernández de Cos warned that "the growing adoption of dollar-pegged stablecoins has also raised concerns in some jurisdictions about monetary sovereignty and the potential for digital dollarization." If borrowers outside the United States shift heavily into dollar-based stablecoins, local monetary policy loses traction and domestic conditions become more tightly coupled to US policy. For emerging markets, the dollar stablecoin is not a neutral payments innovation — it is a potential vector for imported monetary policy.
What Stablecoins Would Need to Become Money
The speech was not a blanket rejection. Hernández de Cos sketched what it would take for stablecoins to perform the role of money: robust, transparent regimes that enforce par redemption for payment use, or explicit treatment as investment products with conduct and disclosure rules. Legislation in major jurisdictions is already taking that stance. The US GENIUS Act, signed on 18 July 2025, requires permitted payment stablecoin issuers to hold reserves one-to-one in cash and short-term Treasuries and prohibits paying yield to holders, with enforcement beginning 18 January 2027. The Treasury Department's implementing proposal, published in August 2026, opens a 60-day comment period with a final rule expected before January 2027.
But regulation that makes stablecoins safer does not make them money in the central-bank sense. It makes them safer investment-like claims. That distinction is the heart of the BIS position: a well-regulated stablecoin may be a sound asset, but it still settles in something other than central bank money, still fragments across chains, and still lacks the lender-of-last-resort backstop that makes a bank deposit "money" rather than a promise.
The Counter-Case: Why the Market Disagrees
The strongest counter-thesis comes from the market itself. Industry forecasts collected by the BIS put the stablecoin market at $2 trillion to $4 trillion by 2030, driven by cross-border payments, corporate treasury use, and demand for dollar exposure outside the United States. Proponents argue that stablecoins already do what traditional rails cannot: settle 24/7, move value across borders in minutes, and provide dollar access in jurisdictions where the banking system is costly or inaccessible. Real-economy stablecoin payments for goods and services reached an estimated $350 billion to $550 billion in 2025, up roughly 60% year over year by one industry estimate — a small but fast-growing slice of global payments.
There is also a geopolitical argument Washington finds hard to ignore: dollar-backed stablecoins extend the reach of US Treasuries. Some US officials have described stablecoins as a digital revolution that could strengthen the dollar's reserve-currency status and generate demand for trillions of dollars in government debt. From that vantage point, the BIS's caution looks like a defence of the European banking model, where tokenised deposits keep deposits — and funding power — inside licensed banks.
The counter-thesis has a real weak point, however. Growth in stablecoin market capitalisation has not translated into payments dominance. At roughly $290 billion to $310 billion of market capitalisation in late August 2026 — with Tether's USDT at about 63% and Circle's USDC at about 25% — the sector remains a fraction of bank deposits, and the $390 billion in adjusted annual transaction value cited by the BIS is less than one-fifth of a single day of CHIPS clearing. The network effects that make money useful are precisely what stablecoins lack: users must still check which token the counterparty accepts, and on which chain.
Market Reaction and the Bank Counter-Attack
Stablecoin-linked equities have been volatile on the regulatory newsflow rather than on the BIS speech itself. In early May 2026, Circle Internet Group and Coinbase Global shares rallied sharply after lawmakers unveiled revised stablecoin-yield text, with Circle gaining roughly 20% and Coinbase about 5% on the day. The rally reflects a simple dependency: both companies lean heavily on interest income from the reserve assets backing USDC. That same dependency is under attack. Thirty-nine US state bankers associations, representing banks with $21.8 trillion in assets, formed the BankChain Alliance on 25 August 2026 to build a bank-owned blockchain network for tokenised deposits and stablecoins by 2027 — a direct response to deposits leaking into crypto-native stablecoins. JPMorgan Chase and other large banks are also weighing their own stablecoins, which would let them keep deposits on their own ledgers rather than ceding them to crypto-native issuers.
The BIS chief acknowledged that tokenised deposits face their own hurdles: interoperability, governance, and legal obstacles including settlement matters. If tokenised deposits were adopted only at the individual-bank level on siloed networks, competitive imbalances could widen — larger institutions would capture scale and data network effects while smaller lenders face higher funding costs and tougher competition for deposits. Round-the-clock operability could also quicken deposit outflows, potentially requiring additional backstops. The BIS prescription is therefore not a simple swap of one technology for another; it is a redesign of the settlement layer, with tokenised central bank reserves at its core.
What to Watch: Three Signals That Will Decide the Fight
The debate will be settled by data, not doctrine. Three signals matter. First, the share of stablecoin transfers that occur wallet-to-wallet outside KYC venues — if it keeps rising, the integrity argument against stablecoins hardens; if regulated venues recapture the flow, it weakens. Second, the reserve composition of the largest issuers: a shift toward central bank reserves would ease money-market contagion risk but intensify bank disintermediation, while a shift into Treasury bills would transmit stablecoin runs directly into government funding markets. Third, the pace of tokenised-deposit pilots crossing from wholesale to retail use — the BIS model only works if banks can deliver interoperable, par-settling retail payments at a cost users will accept.
Regulatory timing is the near-term catalyst. The US Treasury's proposed GENIUS Act rule is open for comment, with a final rule expected before January 2027 and enforcement beginning 18 January 2027. The European Union's MiCA framework already requires e-money tokens to hold at least 30% of reserves in bank deposits — 60% for significant issuers — a deliberate design to keep funding inside the banking system. If the US and EU regimes converge on reserve and yield rules, stablecoins become a regulated, yield-free payments adjunct; if they diverge, regulatory arbitrage and market fragmentation — the very outcomes the BIS warns against — become more likely.
Outlook: A Bifurcated Monetary Future
The most likely outcome is not a winner-take-all settlement but a bifurcation. Tokenised deposits carry the bulk of day-to-day payments and wholesale settlement, inside prudential perimeters and with settlement in central bank money. Stablecoins survive in specialised roles — decentralised lending pools, cross-border corridors where banking access is weak, and jurisdictions embracing dollarisation — either under regimes that enforce par redemption or explicitly as investment products.
Short term, the regulatory overhang keeps stablecoin equities news-driven and volatile: every rule proposal on yield, reserves, or permissible issuers moves Circle, Coinbase, and their exchange-traded proxies. Medium term, the battle shifts to the rails: banks building tokenised-deposit networks against crypto-native issuers racing to comply with the GENIUS Act before the January 2027 enforcement date. Long term, the question is structural: whether the future of money is a two-tier system with a programmable settlement layer, or a fragmented stack of private monies that users must audit at every transaction.
Hernández de Cos, a candidate to succeed European Central Bank President Christine Lagarde in 2027, closed his argument with a line that captures the BIS worldview:
Tokenised deposits offer a more direct path to harness tokenisation while preserving the monetary system's foundations.
The foundations in question are not technological. They are the par redemption, the central bank backstop, and the singleness that let a dollar change hands without the receiver asking what it is.
The central bank answer to crypto is not to beat blockchain at its own game. It is to make the game irrelevant by putting central bank money on the chain.
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