BIS Declares Stablecoins as Unreliable Money Amid Regulatory Scrutiny

Stablecoins do not meet three essential criteria: «unity,» «elasticity,» and «integrity,» according to a report by the Bank for International Settlements (BIS).

The BIS referred to these assets as «digital instruments on demand,» which resemble financial assets more than they do traditional currencies. Unlike central bank money, «stablecoins» are issued by private firms, and their value can fluctuate, violating the principle of «monetary unity.»

The second criterion is «elasticity.» The BIS pointed out that the issuance of new stablecoins requires full prepayment from holders. This rigid model fails to buffer economic shocks and doesn’t address the demand for large payments. Central bank systems, on the other hand, can provide liquidity as required.

Moreover, the BIS asserts that the structure of stablecoins makes them susceptible to financial crimes, undermining the third principle of «integrity.» This is particularly true for transactions made through non-custodial wallets on public blockchains, which have been linked to money laundering, sanction evasion, and terrorism financing in the report.

While the BIS acknowledged the demand for stablecoins due to their accessibility for cross-border transfers and low fees, it believes their role should be limited and tightly regulated.

Despite the criticism, the report praised the concept of tokenization, describing it as a «transformational innovation» that will enhance rather than replace the current financial framework.

Members of the crypto community expressed that this negative assessment was not unexpected, reminding others that the BIS is a regulatory body associated with the world’s central banks.

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

It is worth noting that experts have alerted about a potential bubble in the stablecoin market. They believe that the successful listing of Circle will trigger a wave of IPOs from companies looking to follow suit.