In a speech delivered on Wednesday, Agustin Carstens, general manager at the Bank for International Settlements, warned that the events of 2022 have cast “serious doubts on the ability of stablecoins to function as money.” Stablecoins are cryptocurrencies that are pegged to the value of other assets, such as sovereign currencies. They do not benefit from the same regulatory requirements and protections that apply to bank deposits.
Carstens noted that regulators and lawmakers had already been skeptical of stablecoins before the collapse of algorithmic stablecoin ecosystem Terra in May, which triggered a wider crypto market collapse and a string of high profile bankruptcies in the industry. Global standard setters have since warned that many existing stablecoins may not meet the tough standards they have planned for issuers.
The BIS general manager also highlighted that stablecoins arose in part because some of the technical capabilities they provide cannot currently be met by existing forms of money. He encouraged central banks to engage with new technologies and look to innovate, or else the private sector “will step in.”
Carstens praised tokenized deposits and central bank digital currencies, which take advantage of the technologies tied to crypto but preserve the “trust” offered by public systems. He noted that central banks must look to innovate or risk losing out to the private sector. In 2021, the BIS signaled for central banks around the world to start exploring national digital currencies. Currently, more than 100 jurisdictions around the world are considering issuing digital versions of their sovereign currencies.
The events of 2022 have caused serious doubts about the ability of stablecoins to act as money, as they do not have the same regulatory requirements and protections as bank deposits. Global standard setters have warned that many existing stablecoins may not meet the tough standards they have planned for issuers.
Carstens encouraged central banks to engage with new technologies and innovate, or else the private sector “will step in.” He praised tokenized deposits and central bank digital currencies, which take advantage of the technologies tied to crypto but preserve the “trust” offered by public systems.
Central banks must take the initiative to innovate or risk losing out to the private sector. In 2021, the BIS signaled for central banks around the world to start exploring national digital currencies. Currently, more than 100 jurisdictions around the world are considering issuing digital versions of their sovereign currencies.
Carstens noted that stablecoins arose in part because some of the technical capabilities they provide cannot currently be met by existing forms of money. He argued that this is an important lesson to be taken from stablecoins from a public policy perspective.
In conclusion, the events of 2022 have led to serious doubts about the ability of stablecoins to act as money. Central banks must take the initiative to innovate and explore new technologies, or else the private sector will step in. Currently, more than 100 jurisdictions around the world are considering issuing digital versions of their sovereign currencies. This shows just how important it is for central banks to innovate, or risk losing out to the private sector.
