A new report from the Bank for International Settlements (BIS) challenges the notion that stablecoins can serve as real money in a modern financial system.

According to the BIS Annual Economic Report 2025, stablecoins fail the fundamental tests of “singleness,” “elasticity” and “integrity”— three critical criteria that define effective monetary instruments.

The BIS describes stablecoins as “digital bearer instruments” that resemble financial assets more than true money. “Stablecoins perform poorly when assessed against the three tests for serving as the mainstay of the monetary system,” the report claims.

Unlike central bank-backed money, which is accepted “at par” and requires no background checks, private entities issue stablecoins and often trade at fluctuating rates. This undermines the core principle of monetary singleness, it claims.

Related: South Korea’s central bank wants gradual stablecoin rollout

Stablecoins fail elasticity and integrity tests

Elasticity, the second test, is crucial for absorbing shocks and meeting large-value payment demands, BIS said in its report.

It pointed out that “any additional supply of stablecoins thus requires full upfront payment by its holders,” likening it to a “strict cash-in-advance setup” that contrasts with the flexibility of modern banking systems, where central banks provide liquidity as needed.

The third and perhaps most damning failure lies in the area of integrity. The report claims stablecoins’ design, especially those transacted via unhosted wallets on public blockchains, makes them prone to financial crime.

“Stablecoins have significant shortcomings when it comes to promoting the integrity of the monetary system,” the BIS notes, emphasizing their vulnerability to money laundering, sanctions evasion and terrorist financing.

Related: Malaysia launches Digital Asset Hub to test stablecoin, programmable money

Stablecoins should have a limited role

While acknowledging the continued demand for stablecoins due to features like cross-border accessibility and lower transaction costs, the BIS argues that these instruments should only play a limited, well-regulated role.

“Society can re-learn the historical lessons about the limitations of unsound money,” the report cautions. “Bold action by central banks and other public authorities can push the financial system along the right path, in partnership with the financial sector.”

Circle, the company behind USDC (USDC), saw its stock drop more than 15% on Tuesday after the BIS report, hitting $222. CRCL shares reached an all-time high of $299 on Monday.

Despite its hard take on stablecoins, the BIS report praised tokenization as a “transformative innovation” for the next-generation monetary and financial system. It said tokenization builds on the current financial system rather than replacing it.

Meanwhile, some in the crypto community said it is “no surprise” that the BIS paper is generally negative on stablecoins, given that it is a “regulatory body owned by global central banks.”

“The BIS is hysterical in its opposition to crypto,” Jim Walker, chief economist at Aletheia Capital Limited, wrote. “The first criterion, backed by a central bank, should make it a laughing stock given the historical failures of those institutions around the world.”

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]]> https://earlybirdsinvest.com/bis-says-stablecoins-fail-as-money-calls-for-strict-limits-on-their-role/feed/ 0 44022 https://earlybirdsinvest.com/christopher-perkins-warns-bis-crypto-plan-could-trigger-bigger-financial-risks/ https://earlybirdsinvest.com/christopher-perkins-warns-bis-crypto-plan-could-trigger-bigger-financial-risks/#respond Mon, 21 Apr 2025 16:25:38 +0000 https://earlybirdsinvest.com/christopher-perkins-warns-bis-crypto-plan-could-trigger-bigger-financial-risks/

Christopher Perkins, the president of CoinFund, has raised concerns against a new report from the Bank for International Settlements (BIS).

The report, released on April 15, suggested that crypto markets should be kept apart from traditional finance. Perkins believes this kind of separation would increase risks for the global financial system.

Perkins criticized the BIS for what he called an approach shaped by fear and misunderstanding. He pushed back against the idea that crypto needs to be contained, stating, “Crypto is not communism”. He said that they offer global access to financial tools and cannot be shut down or controlled by any one group.

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Perkins warned that treating crypto as something separate could create problems during times of market stress. If a crisis began in crypto outside regular business hours, it could spill over into traditional finance before markets reopened, creating major liquidity issues.

The BIS report said crypto has grown large enough to be a concern for investor safety. It also raised questions about the risks of DeFi, the anonymous nature of many developers, and the possible effects of stablecoins on countries with weak economies.

However, Perkins argued that DeFi systems are more open than banks, where much of the activity happens behind closed doors. On the subject of anonymous developers, he stated that many traditional finance firms also do not reveal who builds their systems.

Meanwhile, Greg Cipolaro, head of research at New York Digital Investment Group (NYDIG), recently shared his views on how crypto markets respond to global sell-offs. What did he say? Read the full story.

Having completed a Master’s degree in Economics, Politics, and Cultures of the East Asia region, Aaron has written scientific papers analyzing the differences between Western and Collective forms of capitalism in the post-World War II era.
With close to a decade of experience in the FinTech industry, Aaron understands all of the biggest issues and struggles that crypto enthusiasts face. He’s a passionate analyst who is concerned with data-driven and fact-based content, as well as that which speaks to both Web3 natives and industry newcomers.
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