Bank for International Settlements: Stablecoins do not meet currency standards and cannot become a pillar of the financial system

Recently, the bank for international settlements released a report pointing out that stablecoins fail to meet the three key criteria required to become a pillar of the monetary system: uniqueness, resilience, and integrity.

The institution known as the "bank for international settlements" assessed emerging financial technologies in its annual report, stating that the role of innovations such as stablecoins in the future monetary system remains unclear. The report pointed out that although stablecoins have advantages in certain aspects, such as programmability, pseudo-anonymity, and user-friendly access methods, they perform poorly in measuring the three ideal characteristics of sound monetary arrangements.

The report acknowledges that stablecoins may offer lower costs and faster transactions due to their technical characteristics, especially in the field of cross-border payments. However, compared to traditional currency systems, stablecoins could pose risks to the global financial system by undermining government monetary sovereignty and facilitating illegal activities.

Specifically, stablecoins have structural flaws in resilience testing. Taking a well-known stablecoin as an example, its issuance requires full prepayment, which imposes a "prepaid cash constraint". In addition, stablecoins fail to meet the "uniqueness" requirement of currency, as they are usually issued by centralized entities that may set different standards and may not necessarily provide the same settlement guarantees.

In promoting the integrity of the monetary system, stablecoins also have significant issues. Not all issuers adhere to standardized KYC and AML guidelines, making it difficult to effectively prevent financial crime.

Despite concerns about stablecoins, the Bank for International Settlements remains optimistic about the potential of tokenization, viewing it as a revolutionary innovation across multiple financial sectors. The report indicates that a tokenization platform centered on central bank reserves, commercial bank money, and government bonds could lay the foundation for the next generation of currency and financial systems.

The report triggered a market reaction, with the stock price of a well-known stablecoin issuer experiencing a significant drop after the report was released. However, the company had previously reached an all-time high, increasing over 600% from its initial public offering price.

In summary, although stablecoins play an important role in the crypto ecosystem and certain specific scenarios, the bank for international settlements believes they are not yet sufficient to be considered true currency, nor are they likely to become a core pillar of the future financial system.