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BIS and stablecoins - Challenging the scorecard
The BIS vision of the next-generation monetary system casts stablecoins in “at best…a subsidiary role”; and while some expressed deficiencies are valid, the chosen judgement parameters left stablecoins destined to fail the test. We believe stablecoins have a role in the monetary system, but the scale will be driven by factors beyond those cited here by the BIS.
The Bank for International Settlements (BIS) laid out a vision of the “next generation monetary and financial system” in its 2025 Annual Report. At the centre of this vision lies tokenized platforms of central bank reserves, commercial bank money, and government bonds – essentially a digitized version of the current framework. The role of stablecoins is seen as subsidiary at best, a conclusion based on three metrics chosen by the BIS of singleness, elasticity and integrity.
The role of stablecoins is seen [by the BIS] as subsidiary at best.
The BIS vision contains much of merit on tokenization and few would argue that stablecoins alone could be the mainstay of a future monetary system. But rather than the BIS’s metrics, the relevance of stablecoins in a future monetary ecosystem may rest on factors such as whether stronger regulation can move them from niche to mainstream, how potent the competition is from Central Bank Digital Currencies, and the broader progress of asset market tokenization and the digital economy. Crypto-maximalists may be swift to criticise the BIS for “talking its own book”, but cautious optimism around the role of stablecoins likely remains the most appropriate stance. In the full report, we look in turn at each of the three tests chosen by the BIS of singleness, elasticity and integrity, which describes them as follows:
- Singleness: Money should settle at par, no questions asked. Money issued by different banks can be accepted by all. Our verdict: The BIS definition of singleness is too narrow, and stablecoins can offer the equivalence of singleness in the digital realm.
- Elasticity: The supply of money should be available to meet demand without inducing payment delays or gridlock, including in emergencies. Our verdict: Stablecoins cannot offer elasticity, but nor are they intended to.
- Integrity: A monetary system that is open to fraud, crimes and illicit activities will not command trust and so will not stand the test of time. Our verdict: Stablecoins face challenges related to illicit activity. In similar fashion to management of illicit activity in fiat currencies, the key is regulation and enforcement of controls around stablecoin operations.
While we have our reservations about the metrics chosen by the BIS to assess the role stablecoins might (or might not) play in a future monetary framework, the BIS’s question of whether stablecoins will move beyond being a peripheral player is a valid one. There are a number of use cases for stablecoins (e.g., consumer digital transactions, business-to-business payments, cross-border payments, access to hard currency equivalents) but also some risks that they face (e.g., credit risk, the risk of a ‘run’ on the peg, regulatory gaps, crime, and challenges to monetary sovereignty).
Stablecoins, and private money in general, seem likely to form some part of a future financial ecosystem.
As tempting as it may be to dismiss the BIS observations about stablecoins, we would not dismiss all the arguments. Stablecoins, and private money in general, seem likely to form some part of a future financial ecosystem. Whether that is a peripheral or pivotal role may not be determined, however, entirely by the three metrics of singleness, elasticity and integrity.
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What are stablecoins?
A stablecoin is a programmable cryptocurrency whose value is pegged to another asset. They are often grouped into three types:
1. Real world asset-collateralized. Stablecoins pegged to the value of a real-world asset. The credibility of this peg relies on reserves being held in that asset, or liquid equivalents, to ensure that requests to convert from a stablecoin into that asset can be met. The stablecoin can be pegged to commodities (e.g. gold), to other financial assets (e.g. US Treasuries), but the market cap of listed stablecoins is dominated by those pegged to the US dollar.
2. Crypto-collateralized. Stablecoins pegged to a real-world asset such as the US dollar. However, the reserves used to sustain the peg are held in cryptocurrencies. Given the volatility of cryptocurrency prices, the stablecoins are over-collateralized.
3. Algorithmic. Stablecoins that use an algorithm or formula to control the supply of the stablecoin rather than using traditional reserves in real world assets or cryptocurrencies.
For more on stablecoins and other digital assets, please read Daragh Maher’s 𝘜𝘚: 𝘛𝘩𝘦 𝘤𝘳𝘺𝘱𝘵𝘰 𝘵𝘪𝘱𝘱𝘪𝘯𝘨 𝘱𝘰𝘪𝘯𝘵 - 𝘋𝘪𝘨𝘪𝘵𝘢𝘭 𝘢𝘴𝘴𝘦𝘵𝘴 𝘪𝘯𝘴𝘪𝘨𝘩𝘵𝘴 summary (June 2025) by clicking on the card below.
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