BIS: Stablecoins Not Ready for Payment Backbone, Tokenized Deposits Seen as Safer

The Bank for International Settlements says stablecoins aren’t ready to be the backbone of payments — and it’s betting on tokenized bank deposits as the safer, more credible alternative. At the Federal Reserve’s Jackson Hole symposium on Aug. 28, BIS General Manager Pablo Hernández de Cos laid out why stablecoins, as they exist today, “do not yet credibly function as a payment method at scale.” In a speech that doubled as a status report on crypto payments, he argued that tokenized deposits — digital representations of commercial bank deposits that settle in central bank money — provide a clearer path to programmable, widely accepted payments while keeping the monetary system’s foundations intact. “Tokenised deposits offer a more direct path to harness tokenisation while preserving the monetary system’s foundations,” he said. But de Cos stopped short of calling for a ban. He said stablecoins could coexist with tokenized deposits if regulators clearly defined roles and enforced strong safeguards: tokenized deposits for most daily and wholesale payments, and stablecoins for narrower use cases such as decentralized lending. Why BIS is skeptical: the three tests De Cos measured stablecoins against three features he says are essential to any functioning monetary system: - Singleness — money in the same currency should be interchangeable at par. Stablecoins can fail here: under stress USDT, USDC or other tokens can trade off a dollar, forcing users to sell and rebuy to meet payees’ token preferences. Tokenized deposits, by contrast, remain regulated-bank liabilities and settle through central bank accounts, preserving parity. - Interoperability — moving tokens across blockchains often requires bridges, wrapped assets or centralized intermediaries, each adding operational and custody risk. Tokenized deposits face their own fragmentation problems today — many operate in permissioned, non-communicating networks — and there’s no full-scale, multi-bank cross-border tokenized-deposit system yet. - Financial integrity — public blockchains make peer-to-peer transfers possible without regulated custodians, complicating consistent application of anti-money laundering and counterterrorist financing controls. That doesn’t mean self-custody equals crime, but regulators must decide how AML rules apply to peer transfers while respecting privacy. Systemic risks and liquidity implications De Cos warned about potential stability effects as stablecoins scale. Issuers typically back tokens with short-term liquid assets like Treasury bills. That could raise international demand for U.S. government debt — a potential benefit for sovereign funding — but it could also deepen risks: - Deposit flight: If households shift deposits into stablecoins, banks would lose a low-cost funding source and might replace it with wholesale funding that’s more concentrated and rate-sensitive. Smaller banks, which rely heavily on retail deposits, could be hit hardest. - Contagion: Large redemptions could force issuers to sell Treasuries or pull big bank deposits, pressuring short-term funding markets during stress. - Macroeconomic effect: BIS modelling suggests overall effects may be modest and depend on reserve composition, debt supply and whether demand is foreign or domestic. Regulatory patchwork: FSI study across five markets A Financial Stability Institute study published a day before de Cos’s speech compared stablecoin rules in the U.S., EU, U.K., Hong Kong and Singapore. Key takeaways: - All five markets generally restrict issuers to core functions like issuance, redemption and reserve management, but they differ on whether issuers may lend, stake, proprietary trade or custody third-party crypto assets. - The U.S. (via the GENIUS Act) and Singapore take relatively restrictive approaches for non-bank issuers. The GENIUS Act requires permitted payment stablecoins to maintain one-for-one reserves that can include cash, deposits, repos and Treasury securities with maturities under 93 days. - The EU, U.K. and Hong Kong allow some additional activities under separate authorizations. - A regulatory gap exists at the group level: limits often apply to the legal issuer but not to affiliates, allowing related companies to offer services the issuer itself cannot. FSI recommends extending group-level oversight to large non-bank issuers. U.S. implementation and AML rules U.S. authorities are already operationalizing GENIUS Act provisions. In April, the Treasury proposed AML and sanctions rules treating permitted payment stablecoin issuers as financial institutions under the Bank Secrecy Act, requiring transaction-blocking and monitoring systems. Tokenized deposits: institutional strengths and open questions Tokenized deposits remain claims on banks rather than on independent issuers. Their main advantages are institutional: they operate inside existing capital, liquidity, resolution and customer-protection frameworks, and can settle through central bank money — which supports singleness and finality. But they’re not a finished product: - Technical limits: current tokenized systems can become closed networks with trapped liquidity; interoperability and cost barriers favor large banks. - Operational risks: 24/7 transfers could speed deposit runs; legal issues around settlement finality and smart-contract enforcement remain unresolved. - Transition challenges: tokenized systems must coexist with legacy infrastructure during any gradual shift. Pilots and next steps The BIS is actively testing the tokenized-deposit idea via Project Agorá, involving seven central banks and 40+ private firms. The project moved from prototypes to real-value testing in 2026, but those trials don’t yet prove tokenized deposits can replace existing payment networks at scale. Bottom line De Cos presents tokenized deposits as the stronger institutional model for scalable, programmable money — but he acknowledges they aren’t a finished global product. Stablecoins, meanwhile, have broader public-blockchain reach today and are unlikely to vanish. Expect regulators to keep refining guardrails, pushing stablecoins into more specialized roles (with strict redemption, transparency and AML rules) while expanding tokenized settlement experiments and building common technical and legal standards. For crypto firms and banks, the race now is twofold: build interoperable, resilient tokenized rails that live up to their promise — and adapt to a world where stablecoins survive under tighter, more specialized regulation.