Overview

Pablo Hernandez de Cos, the general manager of the Bank for International Settlements (BIS), addressed the U.S. Federal Reserve’s Jackson Hole Economic Policy Symposium in Wyoming, stating that stablecoins are not a credible payment method at scale and that tokenized deposits present a stronger option for using this technology.

Core Arguments

  • De Cos emphasized that both tokenized deposits and stablecoins could coexist, with tokenized deposits handling most daily payments while stablecoins serve more specialized purposes.
  • He described stablecoins as crypto assets designed to maintain a stable value, whose rising use has raised concerns about financial stability and money‑laundering, particularly outside the United States.
  • U.S. Treasury Secretary Scott Bessent has expressed support for stablecoins, calling them a digital revolution that could strengthen the dollar’s status as the world’s leading reserve currency and generate demand for trillions of dollars in Treasury securities.

Risks and Concerns Highlighted

  • De Cos, a candidate to replace European Central Bank President Christine Lagarde next year, outlined several problems with stablecoins: they could reduce sovereign borrowing costs but may increase bank funding costs as money shifts away from lenders, potentially forcing borrowers to pay higher rates.
  • Stablecoins break the “singleness” of money because customers cannot switch between products without incurring costs to sell and buy.
  • Platforms for stablecoins lack genuine interoperability and create money‑laundering concerns since controls are hard to apply consistently.
  • The growing adoption of dollar‑pegged stablecoins raises concerns in some jurisdictions about monetary sovereignty and the potential for digital dollarisation.
  • If borrowers outside the U.S. shift heavily into dollar‑based stablecoins, this could weaken monetary sovereignty, reduce the effectiveness of domestic monetary policy, and link local conditions more closely to external policy positions.

Tokenized Deposits as an Alternative

  • De Cos argued that tokenized deposits offer a more direct path to harness tokenisation while preserving the monetary system’s foundations.
  • However, tokenized deposits still need to address issues around interoperability, governance, and legal obstacles, including settlement matters.

Conclusion

The BIS chief’s remarks underscore significant regulatory and systemic concerns surrounding stablecoins, positioning tokenized deposits as a potentially safer avenue for payment tokenisation, albeit with its own set of challenges.