Stablecoins Did Not Pass the "Three Key Tests", Bank for International Settlements Claims They Are Not True Currency

The Bank for International Settlements recently released a report indicating that stablecoins have failed to pass the "three key tests" required to become a pillar of the monetary system, and therefore cannot be regarded as true currency. These three tests include uniqueness, elasticity, and integrity.

As an important participant in global financial regulatory agencies, the bank for international settlements assessed the new generation of finance in its annual report. The report suggests that while the role of innovations such as stablecoins in the future monetary system remains unclear, they perform poorly in measuring the three ideal characteristics of sound monetary arrangements and cannot become the core of the future monetary system.

The report acknowledges that stablecoins have some advantages, such as programmability, pseudonymity, and user-friendly access methods. On a technical level, stablecoins may offer lower costs and faster transactions, especially in the field of cross-border payments. However, compared to traditional currencies, stablecoins may pose risks to the global financial system by undermining government monetary sovereignty and fostering criminal activities.

Specifically, stablecoins perform poorly in stress tests. Taking a well-known stablecoin as an example, its issuance requires holders to make full prepayments, which imposes a "cash-in-advance constraint." In terms of uniqueness, since stablecoins are usually issued by centralized entities, they may set different standards and do not always provide the same settlement guarantees, thus failing to meet the requirements for the uniqueness of currency.

Stablecoins also have significant flaws in promoting the integrity of the monetary system. Not all issuers adhere to standardized KYC and AML guidelines, and it is also difficult to effectively prevent financial crime.

Despite concerns about stablecoins, the bank for international settlements remains optimistic about the potential of tokenization, viewing it as a revolutionary innovation across areas from cross-border payments to securities markets. The report notes that a tokenization platform centered around central bank reserves, commercial bank money, and government bonds could lay the foundation for the next generation of currency and financial systems.

The release of this report has triggered market reactions, with the stock price of a well-known stablecoin issuer experiencing a significant drop after the report was published. However, considering the important role of stablecoins in the cryptocurrency ecosystem and their increasing popularity in some countries, the future development of stablecoins remains worthy of continued attention.