BIS Governor Calls Stablecoins Unfit for Mass Payments, Endorses Tokenized Bank Deposits

Why Stablecoins Miss the Mark

The chairman of the Bank for International Settlements, Pablo Hernández de Cos, warned at the Jackson Hole symposium that stablecoins do not meet the essential criteria of money. He argued that only tokenized deposits backed by banks can provide the stability and regulatory compliance needed for large‑scale payment systems.

Hernández de Cos said the crypto sector’s reliance on algorithmic or fiat‑pegged tokens fails basic tests of durability, liquidity and legal certainty. He highlighted that bank‑issued digital tokens would inherit the balance‑sheet strength of traditional deposits while offering the speed of blockchain settlement. The BIS chief urged regulators and financial institutions to focus on developing tokenized versions of existing deposits rather than creating new, untested stablecoins.

Stablecoins are marketed as digital cash that maintains a one‑to‑one link with a fiat currency, usually the US dollar. In practice, many operate on thin collateral buffers and depend on private custodians whose solvency is not guaranteed. Hernández de Cos noted that several high‑profile stablecoin projects have struggled with transparency, leading to market doubts during periods of stress.

Can Tokenized Deposits Deliver the Promise of Digital Money?

He explained that money must serve as a unit of account, a store of value, and a medium of exchange. „When a token cannot reliably preserve its peg under pressure, it ceases to function as money,” he said. The BIS chief also pointed to regulatory gaps that allow stablecoin issuers to sidestep capital requirements that banks face, creating an uneven playing field.

Tokenized deposits would be digital representations of traditional bank balances, recorded on distributed ledger technology. Because they are backed by the same assets that support ordinary checking accounts, they inherit the same insurance and oversight mechanisms.

Hernández de Cos cited pilot projects in Europe and Asia where banks have issued blockchain‑based tokens that can be transferred instantly across borders. These experiments show reduced settlement times and lower transaction costs while preserving the safety net of central bank supervision. He warned, however, that widespread adoption will require clear standards for interoperability and robust cyber‑security frameworks.

The BIS chief concluded that stablecoins, in their current form, are unsuitable for the core functions of a national payment system. He called on policymakers to prioritize tokenized deposits, which could reshape the financial architecture by merging the efficiency of digital ledgers with the reliability of regulated banking.

Frequently Asked Questions

What distinguishes tokenized deposits from stablecoins? Tokenized deposits are digital copies of bank‑held funds, fully backed by the issuing institution’s balance sheet and subject to banking regulations. Stablecoins are often privately issued tokens that claim a fiat peg but may lack full collateral backing and regulatory oversight.

Will tokenized deposits be available to retail users soon? Several banks are running trials, but broad consumer access will depend on regulatory approval, infrastructure development, and the establishment of common standards across jurisdictions.

How might this shift affect the crypto market? If tokenized deposits gain traction, they could draw liquidity away from private stablecoins, prompting the crypto industry to focus on other use cases such as decentralized finance applications that do not rely on a fiat peg.