During a speech on Wednesday, Agustin Carstens, the general manager of the Bank for International Settlements (BIS), stated that the events that transpired in 2022 have raised severe concerns about the capability of stablecoins to function as money in the current financial system.
Carstens, who heads the association of central banks from around the world, stated while addressing the Monetary Authority of Singapore that stablecoins, which are cryptocurrencies linked to the value of other assets like national currencies, do not benefit from the regulatory standards and protections that apply to bank deposits.
Encouraging the Role of Central Bank Digital Currencies
Even before the startling collapse of algorithmic stablecoin network Terra in May – which triggered a broader crypto market crash and a spate of high-profile bankruptcies in the overall industry – regulators and policymakers around the globe were wary of these cryptocurrencies. This year, global standard-setters issued a warning that many existing stablecoins may not fulfill the stringent requirements they have established for issuers.
Carstens, who had previously criticized stablecoins due to concerns that they could shift the balance of power over financial markets from central banks to profit-driven private organizations, has now praised tokenized deposits and central bank digital currencies (CBDCs) that reap the benefits of crypto technologies but maintain the trust provided by public systems.
Carstens added: “However, there is an important lesson to be taken from stablecoins from a public policy perspective. Stablecoins arose in part because some of the technical capabilities they provide cannot currently be met by existing forms of money. It is incumbent upon central banks to make sure they contribute to developing an infrastructure that meets these demands.”
According to Carstens, central banks must interact with new technology and adapt or the private industry will step in. In 2021, the BIS encouraged central banks across the globe to explore national digital currencies. Today, more than 100 different countries across the globe are exploring whether to issue digital versions of their respective national currencies.