Latest news with #monetarysovereignty
Times
12 hours ago
- Business
- Times
Stablecoins threaten global financial stability, central banks warn
The growing use of stablecoins threatens global financial stability and the monetary sovereignty of countries, the Bank for International Settlements has warned, in a rebuke of US policy supporting the adoption of the digital assets. Known as the 'central bank of central banks', the BIS issued a pointed criticism of stablecoins, which are a form of digital currency pegged to traditional assets such as the dollar or commodities. It said stablecoins had 'some attributes of money' but warned that they 'perform poorly when assessed against the three tests for serving as the mainstay of the monetary system'. 'Stablecoins as a form of sound money fall short and without regulation pose a risk to financial stability and monetary sovereignty,' it said. The BIS's intervention comes after the US Senate passed a bill known as the 'Genius Act' that would create a legal framework for the digital assets and require them to be backed by liquid assets such as the dollar or US government bonds. The BIS said the main pitfall of stablecoins was their failure to meet the test of monetary 'singleness', where the value of one asset is always guaranteed as it is with dollars or the pound, which are underwritten by their issuing central banks. • Gerard Lyons: The dollar is declining, but what will replace it? Stablecoins are generally considered safer and less volatile than cryptocurrencies such as bitcoin but the sector was thrown into turmoil with the collapsing value of terraUSD in 2022. Terra, which was pegged one-to-one with the US dollar, had about $50 billion of its market capitalisation wiped out. As part of its latest annual report to be published this week, the BIS said: 'Society has a choice. The monetary system can transform into a next-generation system built on tried-and-tested foundations of trust and technologically superior, programmable infrastructures. 'Or society can re-learn the historical lessons about the limitations of unsound money, with real societal costs, by taking a detour involving private digital currencies. If stablecoins continue to grow they could pose financial stability risks, including the tail risk of fire sales of safe assets.' The BIS instead urged central banks to tokenise their currencies to counter the threat of stablecoins. The bank is working with seven big central banks — including the Bank of England, US Federal Reserve, Bank of France and Bank of Japan — and a number of commercial banks to help to create a network of tokenised central bank payments, known as Project Agora.
Zawya
16 hours ago
- Business
- Zawya
Central bank body BIS delivers stark stablecoin warning
The Bank for International Settlements issued its starkest warning yet on the risks posed by stablecoins and urged countries to move rapidly towards the tokenisation of their currencies. The BIS, often dubbed the central bankers' central bank, outlined its concerns, including stablecoins' potential to undermine monetary sovereignty, transparency issues and the risk of capital flight from emerging economies. It comes less than a week after the U.S. Senate passed a bill to create a regulatory framework for U.S.-dollar-pegged stablecoins, a move which, if rubberstamped by the House, is expected to fuel a further explosion in their popularity. Stablecoins are a type of cryptocurrency designed to maintain a constant value, usually a 1:1 dollar peg, backed by real-world assets such as U.S. Treasuries or gold. Dollar-pegged coins currently account for 99% of the market, which is estimated to have over $260 billion worth of coins in circulation. "Stablecoins as a form of sound money fall short, and without regulation pose a risk to financial stability and monetary sovereignty," BIS said in a early-released chapter of its annual report due to be published on Sunday. Hyun Song Shin, the BIS' Economic Adviser, explained that stablecoins lack the traditional settlement function provided by a central bank with fiat money. He likened them to private banknotes circulating in the 19th-century Free Banking era in the United States. It means they can often trade at varying exchange rates depending on the issuer, undermining the no-questions-asked principle of central bank-issued money. "Singleness is either you have it or you don't," Shin said, also warning of the risk of "fire sales" of the assets backing stablecoins if they collapse, as TerraUSD (UST) and the cryptocurrency LUNA did in 2022. There is also the concern around who controls stablecoins. Tether currently has more than half of the overall stablecoin market, but quit the EU following the introduction of new rules which require stablecoin operators to be licensed by the bloc. "The whole question of disclosure, this is where some of the stablecoins differ," BIS Deputy General Manager Andrea Maechler said. "You will always have the question about the quality of the asset backing. Is the money really there? Where is it?" BOLD ACTIONS The BIS wants central banks to go down the route of tokenised "unified ledger" incorporating central bank reserves, commercial bank deposits and government bonds. It would mean central bank money remains both the primary means of global payment and that currencies and bonds from around the world could effectively be integrated into the same "programmable platform". Tokenisation is aimed at creating a digitalised central bank system that settles payments and securities trades almost instantaneously and more cheaply by cutting the need for certain time consuming checks, as well opening up new functionality. It can also make the system more transparent, resilient and interoperable and may protect the system from some of the more unpredictable elements of cryptocurrencies. There would be a number of key issues to overcome, including who gets to set the rules governing the platform and that individual countries are likely to want to retain significant control of how and who uses their currencies. "Realising the full potential of the system requires bold action," the outgoing head of the BIS, Agustin Carstens, said.
