An urgent caution has been issued by the Bank for International Settlements in its annual economic report, highlighting that the stablecoin market, valued around $316 billion, could fracture the worldwide monetary system and undermine sovereign control if its expansion continues unchecked.
The institution is explicitly urging central banks and financial bodies to accelerate the development of tokenized versions of central bank and commercial bank money to establish a more secure alternative framework.
The report directly criticizes tokens pegged to fiat currencies, stating they lack the essential institutional safeguards required to reliably and securely perform monetary functions at a large scale.
A fundamental issue lies in structural weaknesses in reserve asset management. A significant shift of commercial bank deposits into private digital tokens would directly drain funding sources for banks, subsequently constraining their ability to provide credit to the real economy.
It is noteworthy that if the growth of private digital currencies outpaces expectations, existing regulatory measures may prove insufficient to manage the associated risks.
The BIS emphasizes that only by combining tokenized commercial bank deposits with tokenized central bank money on regulated infrastructure can payment system modernization proceed without compromising monetary stability.
The report specifically focuses on the trend of "stablecoin dollarization," where weaker economies increasingly rely on dollar-denominated stablecoins.
This trend not only erodes monetary sovereignty and diminishes the effectiveness of domestic monetary policy but also reduces the role of bank intermediation and heightens the vulnerability of emerging market economies to volatile cross-border capital flows.
Data compiled indicates the report also delivers one of the most severe critiques to date of using permissionless public blockchains, such as those underpinning Bitcoin and Ethereum, as a foundation for a monetary system.
It argues that decentralized networks reliant on distributed validation and lacking central governance cannot meet the stringent demands for scalability, clear legal liability, and settlement finality required by systemically important financial infrastructure.
The inherent limitations of decentralized consensus mechanisms would undermine the efficiency and network effects necessary for a unified monetary system. Furthermore, permissionless blockchains without clear governance structures and accountability mechanisms are ill-suited to support large-scale, regulated financial activities.
The BIS is not opposed to tokenization technology itself. Instead, it advocates for an architecture based on a "unified ledger," integrating tokenized central bank money, commercial bank deposits, and financial assets onto a programmable platform within a regulated legal framework.
This approach aims to preserve the benefits of programmable transactions and rapid settlement while maintaining the institutional foundations of the existing monetary system, thereby enhancing operational efficiency without sacrificing monetary stability and financial integrity.
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