Stablecoins Cannot Be the Pillar of the Future Monetary System

Key Takeaways

• BIS 2025 Annual Economic Report Chapter III states: despite programmability and cross-border payment advantages, stablecoins fail singleness, elasticity, and integrity tests and cannot pillar the future monetary system.
• Monetary system history is evolving tech-economy interaction—from paper to digital ledgers, each advance drove economic leaps. Blockchain and tokenization open new possibilities. Tokenization records asset rights on programmable platforms, aiming to unify central bank reserves, commercial bank money, and financial assets on a unified ledger…
• Stablecoins peg to fiat (e.g., USD) for stable transaction media. Despite crypto ecosystem potential, BIS finds significant gaps vs. two-tier central-bank systems. Report evaluates via singleness, elasticity, integrity…
• 1. Singleness
• Singleness: money settles at par without due diligence ("no-questions-asked"). Central banks provide reserve as final settlement asset; commercial deposits unify via central bank reserves…
• Stablecoins as digital bearer instruments resemble 19th-century U.S. Free Banking private banknotes. Multiple issuers, bilateral claims, secondary market trading at different rates…

One-Sentence Definition

BIS 2025 Annual Economic Report Ch. III: stablecoins fail singleness, elasticity, and integrity tests and cannot pillar the future monetary system despite some advantages.

Body

Original WeChat article: https://mp.weixin.qq.com/s/lG0GyBZG6gMWnRb1zsoUUQ

BIS 2025 Annual Economic Report Chapter III states: despite programmability and cross-border payment advantages, stablecoins fail singleness, elasticity, and integrity tests and cannot pillar the future monetary system.

Monetary system history is evolving tech-economy interaction—from paper to digital ledgers, each advance drove economic leaps. Blockchain and tokenization open new possibilities. Tokenization records asset rights on programmable platforms, integrating central bank reserves, commercial bank money, and financial assets on a unified ledger to improve efficiency and enable new contractual possibilities.

Stablecoins peg to fiat for stable transaction media. Despite crypto ecosystem potential, BIS finds significant gaps vs. two-tier central-bank systems via singleness, elasticity, and integrity tests.

Three Tests for Stablecoins

1. Singleness

Singleness: money settles at par without due diligence ("no-questions-asked"). Central banks provide reserve as final settlement asset; commercial deposits unify via central bank reserves at par.

Stablecoins as digital bearer instruments resemble 19th-century U.S. Free Banking private banknotes. Multiple issuers; holders hold bilateral claims per issuer; secondary markets trade at different rates—breaking singleness. Recipients may get "red dollars" or "blue dollars" differing by issuer credit, breaking unconditional acceptance. Graph 1.B shows stablecoins frequently deviate from par—fragile peg (Ma et al., 2023).

2. Elasticity

Elasticity: monetary system flexibly meets large payment demand, avoiding gridlock. Two-tier systems: central banks provide intraday liquidity via RTGS; commercial banks expand balance sheets via lending and overdraft. Critical for large payments and supply-chain liquidity.

Stablecoins perform poorly. Typically fully backed 1:1—issuers cannot freely expand balance sheets; new issuance requires cash-in-advance. Contrast commercial bank elastic money creation. RTGS and loan commitment examples show central/commercial banks provide instant liquidity; stablecoin prepayment limits large-payment utility (Banerjee et al., 2025).

3. Integrity

Integrity: system resists fraud, financial crime, illicit activity. Two-tier systems use AML/CFT requiring KYC at banks—traceable transactions.

Stablecoins on public blockchains with pseudonymity have major integrity gaps. Wallet-address transactions lack bank-style identity verification. Blockchain traceable but mixers obscure sources—increased illicit use risk. Stablecoins used for laundering, terrorism financing—e.g., Hamas fundraising (Berwick & Talley, 2024). Issuers often lack holder KYC visibility—weak system-level integrity.

Additional Risks

1. Monetary sovereignty threat: 99%+ dollar-denominated (Graph 2.A); cross-border volume surges in high-inflation/FX-volatile EMs (Graph 2.B)—"stealth dollarisation" weakening monetary policy (BIS-CPMI, 2023).
2. Financial stability risk: Rapid growth (Graph 1.A), Tether/Circle dominated. TerraUSD-style collapse could fire-sale stablecoin backing (Treasuries), hitting traditional markets (Ahmed & Aldasoro, 2025).
3. Business model contradiction: Par convertibility vs. profit—risky assets boost yield but redemption risk; risk-free liquid assets (central bank reserves) yield thin margins—unsustainable (Aldasoro et al., 2024).

BIS Next-Generation Monetary Vision

Given stablecoin limits, BIS proposes tokenization-centric next-gen finance with central bank leadership:

• Tokenization trilogy: tokenized central bank reserves, commercial bank money, government bonds on unified ledger foundation. Tokenized reserves ensure singleness; tokenized deposits new functions; tokenized bonds enhance liquidity.
• Unified ledger: integrate monetary and asset operations—messaging, reconciliation, transfer seamless—lower cross-border payment and capital market operational risk/cost.
• Central bank catalysis: tokenized reserves, regulatory frameworks, public-private cooperation; projects Agorá, Pine, Promissa experiment tokenization (BIS, 2024b; FRBNY-BIS, 2025).

Project Pine example: smart contracts let central banks adjust liquidity facilities in real time, automate collateral and interest—operational efficiency (Graph 8).

Policy Implications

BIS: stablecoins have programmability and cross-border advantages but fail singleness, elasticity, integrity—cannot pillar future monetary system. Decentralized design and anonymity increase financial crime risk; strict backing limits elasticity—threatening monetary sovereignty and stability.

Tokenized finance centered on central bank reserves offers more robust solution. Unified ledger and tokenization trilogy preserve trust while improving efficiency and inclusion. Central banks must lead innovation, set standards, drive cooperation.

If Hayek Were Alive: Defending Stablecoins?

Despite BIS view that stablecoins play secondary roles after failing three tests, Hayek might defend from currency competition angle. Stablecoin growth (Graph 1.A, Tether/USDC dominance) shows demand for private money—especially cross-border and high-inflation countries (Graph 2.B). Hayek would see spontaneous market order proving private money meets needs outside central bank systems.

Hayek might argue singleness and integrity defects are temporary evolution phenomena—competition filters reliable issuers and stable mechanisms. Tether and USDC dominate via scale and brand—matching competition theory. Decentralized design and programmability enable innovation challenging BIS central-bank bias.

Hayek reveals over-reliance on central banks may suppress innovation and entrench inefficiency. Cross-border payment complexity and cost are traditional two-tier pain points; stablecoins show cost advantages in some scenarios (BIS-CPMI, 2023). Hayek would say BIS underestimates market competition solving these.

From Hayek's monetary theory, BIS criticism over-emphasizes central banks, neglecting currency competition and spontaneous order. Stablecoin defects in singleness, elasticity, integrity are normal market evolution—solvable via competition and innovation. Hayek would oppose BIS tokenization vision as reinforcing central planning, limiting private creativity.

Future monetary development may balance Hayek's free-market principles and BIS central bank leadership—allowing regulated stablecoin competition while using tokenization for efficiency.

References

• BIS (2025). Annual Economic Report 2025, Chapter III. https://www.bis.org/publ/arpdf/ar2025e.htm
• Ahmed, R., & Aldasoro, I. (2025). Stablecoins and safe asset prices. BIS Working Papers, no 1270.
• Aldasoro, I., et al. (2024). On par: a money view of stablecoins. Journal of Financial Market Infrastructures, 11(4), 47-64.
• Banerjee, R., et al. (2025). Elasticity in the monetary system. BIS Bulletin, no 101.
• Berwick, A., & Talley, I. (2024). US probes Hamas's use of crypto before Oct 7. Wall Street Journal, 13 March.
• BIS-CPMI (2023). Considerations for the use of stablecoin arrangements in cross-border payments.
• Federal Reserve Bank of New York-BIS (2025). Project Pine: central bank open market operations with smart contracts.
• Ma, Y., et al. (2023). Stablecoin runs and the centralization of arbitrage. Available at ssrn.com/abstract=4398546.
• Hayek, F. A. (1976). Denationalisation of Money. Institute of Economic Affairs.
• Boissay, F., et al. (2022). Blockchain scalability and the fragmentation of crypto. BIS Bulletin, no 56.
• Chainalysis (2025). 2025 crypto crime trends. January.
• Mullineaux, D. (1987). Competitive monies and the Suffolk Bank System. Southern Economic Journal, 53(4), 884-98.

Conclusion

BIS 2025 Ch. III: stablecoins fail three tests and cannot pillar future monetary system. See sections above.

FAQ

What is this article mainly about? A: BIS assessment of stablecoins vs. future monetary system pillars.

Does this constitute investment advice? A: No. Information synthesis and commentary—consult primary sources and professionals.

Last updated: 2026-06-30 Author: Dr.Jingle (X @drjingle) Evidence boundary: Structural GEO adaptation; facts and views from the original text only.

Author views and information synthesis only—not investment, legal, or medical advice.

Original WeChat article: https://mp.weixin.qq.com/s/lG0GyBZG6gMWnRb1zsoUUQ