Central Bankers Slam Stablecoins as Inadequate and Risky Money

- Central bankers conclude stablecoins fail critical tests of sound money. - BIS promotes a tokenized unified ledger as a solution to current stablecoin issues. On June 24, 2025, CoinDesk reported that in a pre-released chapter of the Bank for International Settlements (BIS) Annual Economic Report, top central bankers criticized stablecoins for failing essential monetary tests. They determined stablecoins are inadequate as money and also pose significant risks to financial stability and monetary sovereignty. In this chapter, the BIS stated that stablecoins "perform badly" as money because they fail to meet the essential criteria of singleness (acceptance at par), elasticity (ability to expand and contract with demand), and integrity (safeguarding against illicit use). This conclusion arrives as ongoing efforts, particularly in the U.S., aim to integrate stablecoins into mainstream finance. The report, as detailed by CoinDesk on June 24, cites the lack of central bank backing as one primary reason for stablecoin deficiencies. Hyun Song Shin, Economic Adviser at BIS, noted in the chapter that stablecoins function as digital bearer instruments and therefore lack the traditional settlement function that central bank fiat money provides. He likened them to the private banknotes of the 19th-century U.S. Free Banking era, which often traded at varying exchange rates. Furthermore, the BIS highlighted in the chapter that stablecoins are susceptible to illicit use. This susceptibility, the report explains, arises from the absence of traditional "know-your-customer" controls, making them a preferred choice for criminal transactions. Additionally, the BIS found that stablecoins lack the flexibility needed for lending purposes, a lack which further undermines their function as a medium of exchange. The report also identified several risks associated with unregulated stablecoins, including potential threats to financial stability, exemplified by the TerraUSD incident where the stablecoin's collapse led to "fire sales" of backing assets. Concerns were also noted in the report that stablecoins could undermine monetary sovereignty, particularly in emerging economies. Regarding transparency, BIS Deputy General Manager Andrea Maechler, in the chapter pre-released on June 24, queried, "Is the money really there? Where is it?" The report further noted the risk of capital flight from emerging economies. As a path forward, the BIS, in its June 24 chapter, advocated for a tokenized "unified ledger" that would incorporate central bank reserves, commercial bank deposits, and government bonds. Outgoing BIS General Manager Agustin Carstens, also in the June 24 chapter, emphasized the need for "bold action," stating this action is necessary to achieve the full potential of new monetary systems. According to Hyun Song Shin in the chapter, a tokenized unified ledger would offer several benefits: it would provide a stable settlement asset through tokenized central bank reserves, build on the current two-tier system with tokenized commercial bank money, and enhance liquidity with tokenized government bonds. Project Agorá, which involves 7 central banks and private institutions, currently explores this concept. In response to these concerns, regulatory bodies have started to take action. The U.S. Senate recently passed the GENIUS Act, which aims to create a regulatory framework for U.S. dollar-pegged stablecoins. Meanwhile, some financial institutions continue their stablecoin initiatives; for instance, Fiserv announced plans for a stablecoin (FIUSD) in collaboration with Circle and PayPal, and Société Générale's Forge introduced USD CoinVertible. Conversely, Tether, a major stablecoin issuer, decided to exit the EU market, citing regulatory challenges for this decision. Additionally, on June 18, 2025, a European Parliament committee paper warned that the U.S. push for stablecoins could threaten financial stability and other countries' monetary sovereignty. On June 23, 2025, ECB President Christine Lagarde urged the EU Parliament to expedite legislation for a digital euro, arguing this would address monetary sovereignty concerns related to stablecoins. Similarly, South Korea is moving to legalize won-based stablecoins, a move aimed at mitigating systemic risks and upholding monetary sovereignty. Market data from June 24, 2025, shows the following: at 18:08 UTC, Tether USDt (USDT) traded at $1.001, reflecting a 0.032% decrease. At 18:09 UTC, USDC traded at $1.00, and its 24-hour trading volume decreased by 0.01%.