BIS Warns Stablecoins Lack Credibility for Mainstream Payments, Backs Tokenized Bank Deposits

Headline: BIS: Stablecoins aren’t ready for mainstream payments — tokenized bank deposits look more promising At the Federal Reserve’s Jackson Hole symposium on Aug. 28, Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos delivered a blunt assessment: in their current form, stablecoins “aren’t a credible means of payment at scale.” Instead, he argued, tokenized bank deposits — digital representations of commercial bank balances that settle through central bank money — offer a safer and more direct route to programmable, high-volume payments. Why the skepticism? De Cos evaluated stablecoins against three core attributes he says any resilient monetary system must deliver: singleness, interoperability and financial integrity — and found stablecoins wanting. - Singleness: Money in the same currency should be redeemable at the same value no matter where it’s held. Stablecoins can trade off-par during stress (USDT and USDC, for example, don’t always exchange one-for-one), undermining that uniform value. Tokenized deposits, by contrast, are liabilities of regulated banks and settle via central bank accounts, preserving parity across institutions. - Interoperability: Stablecoins move across public blockchains and layer-2 networks, but moving a token between chains often relies on bridges, wrapped assets or centralized intermediaries — each adding operational and custody risk. Tokenized deposits are usually built on permissioned networks that also face frictions and lack a global, multi-bank, cross-border system at full scale today. - Financial integrity: Public blockchains enable peer-to-peer transfers without a regulated intermediary, complicating consistent anti-money laundering and sanctions compliance. Regulators therefore face trade-offs between privacy and enforceable AML/CTF controls for on-chain transfers. De Cos didn’t call for a blanket ban on stablecoins. Rather, he proposed a complementary model: let tokenized deposits handle most daily and wholesale payments while restricting stablecoins to narrower roles — for example, certain decentralized finance activities — under clear rules and safeguards. Regulatory patchwork: what the FSI found A BIS-linked Financial Stability Institute (FSI) study, released a day before the speech, compared stablecoin rules in the United States, European Union, United Kingdom, Hong Kong and Singapore. Key takeaways: - Jurisdictions generally limit stablecoin issuers’ core duties to issuance, redemption and reserve management, but they vary widely on whether issuers can lend, stake, trade or custody third-party crypto. - The U.S. and Singapore follow relatively restrictive approaches for non-bank issuers; the EU, UK and Hong Kong allow some additional activities with separate authorizations. - A common gap: many rules apply only to the legal entity issuing the stablecoin, not to affiliates in the same corporate group. That can let related companies perform activities the issuer itself cannot — a potential regulatory blind spot the FSI says merits group-level supervision. GENIUS Act, Treasury views and market impacts U.S. legislation known as the GENIUS Act (now law as of July 2025) requires permitted payment stablecoins to hold one-for-one reserves in cash, deposits, repurchase agreements and short-dated Treasury securities (maturities ≤ 93 days). The U.S. Treasury has signaled that permitted payment stablecoin issuers should be treated as financial institutions for AML and sanctions purposes; a April proposal would fold certain stablecoin issuers into the Bank Secrecy Act regime and require blocking, freezing and transaction-rejection systems. Treasury Secretary Scott Bessent has argued that stablecoins could boost international demand for dollars and U.S. Treasury bills. De Cos agreed foreign demand could increase Treasury bill purchases, potentially lowering government borrowing costs — but warned of knock-on effects: if retail depositors shift funds into stablecoins, banks could lose a cheap, stable funding source. Banks might replace retail deposits with more concentrated and rate-sensitive wholesale funding, which could raise borrowing costs for households and small businesses — especially at smaller lenders reliant on customer deposits. Contagion channels and uncertain macro effects De Cos highlighted another worry: large stablecoin redemptions might force issuers to liquidate short-term government debt or pull bank deposits, pressuring short-term funding markets in stressed conditions. BIS modeling cited in his speech projects modest overall macro effects, but outcomes depend heavily on reserve composition, where demand originates (domestic vs foreign) and the size of adoption. Tokenized deposits: institutional advantages, persistent hurdles Tokenized deposits remain claims on regulated banks and settle through the central banking system — giving them an institutional edge: existing capital, liquidity, resolution and customer-protection frameworks already apply, and settlement in central bank money helps preserve singleness. But technical and operational challenges persist: permissioned bank networks can create trapped liquidity, smaller banks face implementation costs and network effects favoring larger institutions, and round‑the‑clock settlement could accelerate deposit runs unless new liquidity arrangements are designed. Legal questions also remain around settlement finality, smart-contract enforcement and fixing mistaken transactions. Project Agorá and the road ahead The BIS is actively testing tokenized deposits via Project Agorá, a collaborative effort involving seven central banks and 40+ private institutions. The project has moved beyond prototypes into real‑value testing (noted to have advanced in 2026), but De Cos made clear these trials don’t prove tokenized deposits are ready to replace existing payment rails globally. What regulators must do next De Cos’s message is practical: tokenized deposits look like the stronger institutional model for mainstream payments, but they aren’t a finished product — and stablecoins won’t vanish. Policymakers must translate high-level principles into operational rules: define issuer permissions, resolve group-level supervisory gaps, craft AML frameworks for peer-to-peer transfers, and set reserve, liquidity and settlement standards. Differences between jurisdictions could steer issuers to friendlier regimes, so international coordination and technical/legal standards will be crucial. Bottom line The BIS expects coexistence, not elimination. Tokenized deposits are presented as the safer backbone for large-scale programmable payments, while stablecoins may survive in specialized roles under tighter controls. For now, stablecoins’ issues with parity, cross-chain friction and AML enforcement keep them short of the credibility test for universal, final settlement — but continued experiments, regulatory work and market evolution will determine whether that changes.