Bank for International Settlements (BIS) General Manager Pablo Hernández de Cos said stablecoins are unlikely to become a credible means of payment at scale, arguing that tokenized bank deposits could provide a more effective foundation for bringing tokenization into everyday transactions.

The comments were reported in information shared on X by @WuBlockchain, citing Reuters. Speaking at the Jackson Hole Economic Policy Symposium, de Cos said stablecoins and tokenized deposits could coexist but should serve different functions within the financial system. He suggested that tokenized deposits should support most routine payments, while stablecoins could be used for more specialized applications. The Jackson Hole symposium, hosted annually by the Federal Reserve Bank of Kansas City, is a venue where major monetary policy themes are typically framed, and de Cos's remarks add the BIS's voice to an increasingly active policy debate over the role of private digital money.

BIS Raises Concerns Over Stablecoin Adoption

Stablecoins are digital assets generally designed to maintain a stable value against a reference asset, such as the U.S. dollar. Their use has expanded across cryptocurrency markets and in some jurisdictions, prompting financial authorities to examine their potential effects on banking systems and monetary policy. In the United States, stablecoin legislation has advanced through Congress, while the European Union's Markets in Crypto-Assets regulation has introduced reserve and authorization requirements for issuers, reflecting how regulators are already moving to define where such tokens fit within the financial system.

De Cos highlighted several limitations that could constrain the ability of stablecoins to operate as a large-scale payment mechanism, including limited interoperability between different systems and challenges in consistently applying anti-money laundering controls.

These issues could become more significant as stablecoins expand beyond cryptocurrency-related transactions and are increasingly used for payments. Ensuring that different payment networks can communicate effectively while maintaining consistent regulatory standards remains a key challenge for digital forms of money.

The BIS official also warned that greater adoption of dollar-pegged stablecoins in certain jurisdictions could affect monetary sovereignty. Widespread use of foreign-currency stablecoins may reduce the role of domestic currencies in payments and potentially weaken the effectiveness of domestic monetary policy. This concern is particularly relevant for emerging market economies, where dollarization of payment systems has historically limited central banks' policy leverage.

Tokenized Deposits Offer an Alternative

De Cos presented tokenized deposits as a more compelling approach to applying tokenization to the financial system. Unlike stablecoins issued outside the traditional deposit framework, tokenized deposits represent bank deposits in a digital, programmable form. The BIS has promoted this direction through its Project Agorá, which brings central banks and private banks together to test tokenized wholesale payments, and the institution has repeatedly identified tokenization as a core component of the "unified ledger" vision for future financial infrastructure.

Under the model outlined by de Cos, tokenized deposits could be used for ordinary payments while stablecoins remain available for more specialized purposes. The two forms of digital money would therefore not necessarily compete directly but could operate alongside one another.

However, tokenized deposits also face obstacles before they can be deployed broadly. De Cos identified interoperability, governance, and legal issues as areas that need to be addressed.

Interoperability is particularly important because a payment system involving multiple banks and financial platforms requires the underlying networks to work together. Governance and legal frameworks would also need to establish how tokenized deposits are issued, transferred, and regulated.

Stablecoins Could Affect Bank Funding Costs

De Cos also pointed to potential consequences for the banking sector if consumers and businesses move significant amounts of money from traditional bank deposits into stablecoins.

Stablecoin issuers may increase demand for U.S. Treasuries as they hold reserve assets to support dollar-pegged tokens. De Cos said this could potentially reduce government borrowing costs by creating additional demand for Treasury securities.

At the same time, the movement of funds away from bank deposits could increase funding costs for financial institutions. Banks could face higher borrowing costs if they lose a portion of their traditional deposit base, potentially affecting borrowing rates paid by ordinary customers.

The comments reflect the broader debate among central banks and financial institutions over how tokenization should develop without undermining existing monetary and banking systems. While digital assets can introduce new forms of payment and financial infrastructure, policymakers continue to assess their implications for regulation, financial stability, and monetary policy. Observers will be watching whether the BIS's positioning influences the direction of stablecoin rules being drafted in major jurisdictions and how quickly pilot projects around tokenized deposits move from testing to real-world deployment.