Stablecoins May Seem Convenient, But They Lack the Foundation of Real Money

The Three Pillars of Sound Money

At the heart of the BIS's argument lies a fundamental critique of stablecoins, which have gained traction in recent years as a bridge between traditional fiat and the world of crypto assets. According to the organization, sound money must exhibit three core characteristics: singleness, elasticity and integrity—features that stablecoins allegedly fail to uphold. Singleness refers to universal acceptance without question; it ensures that $1 is always worth $1 when exchanged, not 99 cents or less. This level of trust, the BIS argues, can only be achieved through central bank-backed instruments like tokenized deposits or wholesale CBDCs (wCBDCs). Without this assurance, stablecoins remain vulnerable to speculative runs and market volatility, undermining their role as a reliable medium of exchange.

Elasticity, on the other hand, speaks to the flexibility embedded in modern banking systems—the ability of central and commercial banks to extend credit and adjust liquidity in real time. Hyun Song Shin, Head of the Monetary and Economic Department at the BIS, emphasized during a media briefing that interlocking payment obligations require immediate access to funds. Unlike traditional banking models, where liquidity can be extended before actual inflows materialize, stablecoins demand full reserve backing upfront. “You cannot execute a payment unless you already have the balances in your wallet,” Shin explained, highlighting a critical limitation in high-value financial transactions. The absence of this elastic mechanism, he warns, could lead to systemic gridlock in complex payment networks.

Integrity Risks and Regulatory Erosion

Beyond structural shortcomings, the BIS raises serious concerns about the integrity of stablecoins, particularly when deployed on borderless public blockchains. These platforms, while technologically innovative, are increasingly associated with illicit activity. The report notes that stablecoins function as digital bearer instruments—assets that can be transferred without centralized oversight. This feature, though appealing to privacy advocates, also makes them attractive tools for circumventing anti-money laundering (AML) and know-your-customer (KYC) protocols. As a result, stablecoins pose significant risks to financial integrity and regulatory enforcement.

In addition to facilitating illegal transactions, the widespread adoption of stablecoins could erode monetary sovereignty. If private digital currencies gain dominance over national currencies, governments may lose control over key economic levers such as interest rates and fiscal policy. The BIS warns that this form of dollarization—or “stablecoin-ization”—could destabilize domestic financial systems, especially in emerging markets where currency substitution is already a concern. During periods of crisis, mass redemptions by stablecoin issuers could further strain government bond markets, exacerbating liquidity shortages and triggering broader financial instability.

The Unified Ledger Concept: A Tokenized Alternative

Rather than endorsing stablecoins, the BIS proposes an alternative model based on a unified ledger system. Under this framework, both central and commercial banks would operate on a shared network, enabling seamless transfers of tokenized deposits between institutions and end users. While a single ledger offers theoretical advantages in terms of transparency and interoperability, the BIS acknowledges practical limitations, especially when multiple jurisdictions are involved. To address these complexities, the organization envisions interconnected subnets or blockchain layers that maintain autonomy while supporting cross-border functionality.

This concept is being tested through initiatives like Project Agorá, a collaborative effort involving seven central banks and more than 40 private sector participants. The project aims to tokenize correspondent banking relationships to streamline international payments, reducing friction and settlement times. Although still in its early stages, Agorá represents a significant step toward reimagining how global financial infrastructure operates. According to Shin, private sector enthusiasm remains strong, driven by the need for faster, more secure and cost-effective transaction mechanisms.

Governance Challenges in Multi-CBDC Systems

Despite technological promise, multi-central bank digital currency projects face considerable governance hurdles. Each participating nation seeks to preserve authority over its own monetary policy and data sovereignty, complicating efforts to establish a unified system. For instance, Project Jura—a joint initiative between Switzerland and France—required dual notaries to oversee franc-to-euro conversions, ensuring compliance with each country’s legal frameworks. Such arrangements highlight the difficulty of aligning diverse regulatory environments under a common digital architecture.

These challenges underscore the importance of coordination among central banks, regulators and technology providers. Establishing clear governance structures will be essential to maintaining trust, ensuring compliance and preventing jurisdictional conflicts. The BIS Innovation Hubs, launched in 2019, play a pivotal role in this process by serving as incubators for new financial technologies and fostering collaboration among global stakeholders. Notably, the timing of this initiative coincided with Facebook’s announcement of Libra (later Diem), a move that accelerated central banks’ exploration of digital currencies.

The Road Ahead for Tokenized Deposits and wCBDCs

While stablecoins continue to attract attention from investors and fintech firms alike, the BIS remains skeptical about their long-term viability as a cornerstone of global finance. Despite numerous experiments with tokenized deposits outside the BIS framework, few have successfully transitioned from pilot programs to live offerings. Even fewer operate on open, permissionless blockchains—an approach the BIS views with caution due to its lack of accountability and regulatory alignment.

Looking forward, the shift toward tokenized finance appears inevitable, but the path will likely favor solutions that integrate seamlessly with existing financial systems. Central bank digital currencies, particularly wholesale variants, offer a promising avenue for enhancing interbank settlement efficiency while preserving monetary stability. By leveraging distributed ledger technology within controlled environments, central banks can harness innovation without compromising trust or systemic resilience.

Why This Matters for the Future of Global Finance

The BIS’s stance reflects a broader trend among policymakers who seek to balance technological progress with financial stability. As digital currencies evolve, the distinction between private and public money will become increasingly important. The current momentum behind tokenized deposits and wCBDCs suggests that central banks are preparing for a future in which programmable money plays a central role in shaping economic outcomes. However, achieving this vision will require sustained investment, cross-border cooperation and a willingness to rethink legacy infrastructures.

For financial institutions, businesses and consumers, the implications are profound. Faster settlements, reduced counterparty risk and greater transparency could redefine how value is stored, transferred and utilized across the global economy. Yet, without a robust regulatory foundation, the benefits of tokenization may remain unrealized. The BIS’s roadmap serves as both a warning and a guide—urging stakeholders to act thoughtfully, collaboratively and with a long-term perspective on what could be the next evolution of money itself.