On Wednesday, Agustin Carstens, general manager at the Bank for International Settlements (BIS), said that the events of 2022 have cast “serious doubts on the ability of stablecoins to act as money.”
The BIS is an international financial institution owned by central banks that fosters international monetary and financial cooperation and serves as a bank for central banks.
In his speech at the Monetary Authority of Singapore, the central bank and financial regulatory authority of Singapore, Carstens opined that stablecoins are cryptocurrencies pegged to the value of other assets like sovereign currencies, and do not benefit from the regulatory requirements and protections that apply to bank deposits.
Incidents of 2022, like the shocking collapse of the algorithmic stablecoin ecosystem Terra in May have only proliferated the already skeptical approach of regulators towards the crypto sector. The collapse of Terra triggered a wider crypto market collapse and a series of high-profile bankruptcies in the industry.
The general manager added that stablecoins have taught that the central banks must engage with new technologies and look to innovate; otherwise, the private sector will fill their shoes. He said :
However, there is an important lesson to be taken from stablecoins from a public policy perspective. Stablecoins arose in part because some of the technical capabilities they provide cannot currently be met by existing forms of money. Central banks must therefore engage with new technologies and look to innovate, or the private sector will step in.
Carstens had previously criticized stablecoins because of prevailing concerns that they could shift power over monetary systems away from the central bank to private entities “driven by profit.”
Simultaneously, he praised tokenized deposits and central bank digital currencies (CBDC) that take advantage of crypto technologies and preserve the “trust” offered by public systems.
On Monday, Klass Knot, chairman of the Financial Stability Board (FSB), an international body established by G20 that monitors and makes recommendations about the global financial system, commented on the upcoming standards for crypto and stablecoins regulation. Knot issued a letter to G20 finance ministers and central bank governors suggesting that many existing stablecoins would not meet the “high-level” recommendations soon to be established by global institutions like the FSB.
Recently, the BIS also published a report highlighting the need for global coordination in regulating digital assets and warned against increased exposure to the global financial system.
In 2021, the BIS hinted to central banks around the globe to start exploring national digital currencies, and currently, more than 100 nations are considering the idea. A few days ago, the BIS announced its plans to increase its focus on CBDCs in 2023. This move aims to improve payment systems through the bank’s Innovation Hub. The bank’s work schedule for this year also includes a new experiment called “Project Pyxtrial” that will enable the systematic monitoring of stablecoins.