BIS Labels Stablecoins as ‘Unreliable Money’

Stablecoins fail to meet three key criteria: “unity,” “elasticity,” and “integrity,” according to a report by the Bank for International Settlements (BIS).

The BIS described these assets as “digital bearer instruments,” which resemble financial assets more than money. Unlike central bank money, “stablecoins” are issued by private companies, and their value can fluctuate, violating the “unity of money” principle.

The second criterion is “elasticity.” The BIS noted that issuing new stablecoins requires full prepayment from holders. This inflexible scheme does not allow for shock absorption or meeting demand for large payments. Central bank systems can provide liquidity as needed.

The BIS believes the structure of stablecoins makes them vulnerable to financial crimes, breaching the third principle of “integrity.” This is particularly true for transactions through non-custodial wallets on public blockchains. The report linked them to money laundering, sanctions evasion, and terrorism financing.

The BIS acknowledged the demand for stablecoins due to their accessibility for cross-border transfers and low fees. However, the regulator believes their role should be limited and clearly regulated.

Despite the criticism, the report praised tokenization. The BIS called it a “transformational innovation” that will complement, rather than replace, the existing financial system.

Members of the crypto community stated that the negative assessment was no surprise. They noted that the BIS is a “regulatory body owned by the world’s central banks.”

Jim Walker, chief economist at Aletheia Capital, called the BIS’s stance “hysterical” and questioned the reliability of central banks themselves, pointing to their historical failures.

Earlier, experts warned of a bubble in the stablecoin market. They believe that a successful listing by Circle will trigger a wave of IPOs from copycat companies.