Today the Bank for International Settlements (BIS), the central bank to central banks, released a chapter of its Annual report, “The next-generation monetary and financial system,” outlining its vision for a tokenized economy. The BIS sees tokenized deposits dominating retail payments with wholesale central bank digital currencies (wCBDC) enabling interbank settlement, but argues stablecoins lack the fundamental features of sound money.
The BIS identifies three critical flaws in stablecoins: they lack singleness, elasticity and integrity. Singleness refers to universal acceptance without question, requiring token holders to know they can always exchange $1 for a dollar rather than 99 cents or less. The BIS says this is only possible through central bank money settling bank transactions.
Elasticity means central banks and commercial banks can grant credit to expand the money supply. “Where you have very complex interlocking payment obligations, if you had to wait for the incoming payments before you have sufficient liquidity to execute your own outgoing payment, that would be a recipe for gridlock,” explained Hyun Song Shin, the Head of the Monetary and Economic Department at the BIS during a media briefing.
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