Tether CEO Challenges BIS on Fully-Reserved Stablecoins vs Tokenized Bank Deposits

Tether CEO Paolo Ardoino pushed back this week against the Bank for International Settlements’ (BIS) preference for tokenized bank deposits, arguing that fully reserved stablecoins offer savers a clearer, safer alternative to money parked in fractional-reserve banks. The clash stems from comments BIS General Manager Pablo Hernández de Cos made at the Jackson Hole Economic Symposium on Aug. 28. Hernández de Cos warned that stablecoins still lack several attributes required to function as money at scale — notably guaranteed redeemability at par, robust interoperability, and financial integrity — and that their use outside the U.S. raises risks to monetary sovereignty and “digital dollarization.” Ardoino’s reply homed in on the reserve model. He asked why someone would keep savings in a fractional-reserve bank deposit when a stablecoin can be “fully reserved” in highly liquid assets such as U.S. Treasuries. “BIS is rightfully worried about the fact that stablecoins are exposing the emperor without clothes,” Ardoino said. “Why someone should choose to put his savings into a fractional reserve product while stablecoins are fully reserved?” Where tokenized deposits and stablecoins differ - BIS’s preferred model treats tokenized deposits as continuing liabilities of commercial banks that settle via central bank accounts. Sánchez de Cos argued this preserves the “singleness” of money: different bank liabilities remain redeemable at par because settlement runs through the central bank. - Stablecoins are issued by non-bank entities and circulate on public blockchains. Users holding, say, USDT who need to pay someone accepting only USDC often must swap tokens on secondary markets — a process that can break the dollar peg in stress events. - Public blockchains also complicate AML/CFT enforcement, BIS officials say, because tokens can move across multiple networks and through self-custody wallets, sometimes requiring bridges and other off-ramps. Ardoino rebutted by emphasizing that stablecoins can be backed almost entirely with liquid reserves — principally U.S. government debt — while bank deposits are supported only in part by liquid assets under fractional-reserve rules. That point has become central to an increasingly sharp competition between stablecoin issuers and banks to move fiat-denominated money onto blockchains. Bank moves and hybrid experiments Banks are actively building tokenized-deposit infrastructure as stablecoins gain prominence in digital payments. Notable initiatives include: - The Clearing House project: JPMorgan Chase, Bank of America, Citigroup and Wells Fargo are developing a shared deposit token network targeting a first-half 2027 launch for multinational programmable treasury and cross-border payment services. - SWIFT’s blockchain ledger: In July, SWIFT onboarded 17 major banks to a blockchain-based shared ledger designed around tokenized bank deposits for near-constant cross-border payments. - Hybrid models: Custodia Bank and Vantage Bank are testing a dual-purpose token on the Hazel network that behaves as a bank deposit while inside the network and as a stablecoin when moved outside. The Ethereum-based pilot aims for a Q4 2026 rollout. BIS itself acknowledges the tokenized-deposit path has unresolved problems — multi-bank, cross-jurisdictional interoperability does not yet exist, many systems are permissioned, and some models resemble bank-issued stablecoins. Hernández de Cos said tokenized deposits and stablecoins could coexist, with deposits handling everyday payments and stablecoins serving more niche roles. Policy and funding stakes in the U.S. The reserve-and-deposits debate is bleeding into U.S. legislative fights. Banking groups have pressed lawmakers to tighten limits on stablecoin rewards in the Digital Asset Market Clarity Act (aka the CLARITY Act). In July, the American Bankers Association, Independent Community Bankers of America and 76 state banking associations urged revisions to Section 404, warning that yield-bearing stablecoins could pull deposits out of traditional banks and reduce local lending capacity. Citigroup CEO Jane Fraser has echoed those concerns. Hernández de Cos also flagged a macro funding angle: stablecoin issuers buying Treasuries could lift demand for government debt and lower sovereign borrowing costs, while funds flowing out of bank deposits could raise banks’ funding costs and eventually push up borrowing costs for households and companies. Ardoino framed the same dynamics more provocatively: “What happens to financial system if people start realizing that stablecoins are safer and move their savings into the better asset class? We’re in the Find Out phase.” Where things stand USDT remains the largest stablecoin by circulation and has a significant user base outside the United States; Tether has leaned into payments and remittance corridors, including a May investment in cross-border platform LemFi. The BIS warns broader adoption of dollar-denominated stablecoins abroad could weaken domestic monetary policy transmission in affected economies. Bottom line: the debate is no longer academic. Regulators, banks and crypto firms are jockeying to define the architecture of digital fiat — and whether the next wave of on-chain money will primarily be bank liabilities tokenized on blockchains, crypto-native fully reserved stablecoins, or hybrid models that blend both approaches.