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BIS Says Dollar Stablecoins Resemble Investment Assets, Could Strain Financial Stability

Source

Uk Jin

Summary

The BIS said dollar-based stablecoins have characteristics similar to investment assets, which could weigh on the financial system and monetary policy.
Hernandez de Cos stressed that dollar-based stablecoins such as Tether (USDT) and USDC behave less like cash and more like exchange-traded funds (ETFs).
Hernandez de Cos said stablecoin issuers' reserve assets are made up of short-term Treasuries and bank deposits, meaning that in stress scenarios, large-scale redemptions could trigger sales of those assets and put pressure on banks' funding conditions.

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The Bank for International Settlements said dollar-based stablecoins share key features with investment assets rather than money, raising risks for financial stability and monetary policy.

Cointelegraph reported on April 20 that BIS General Manager Pablo Hernandez de Cos made the remarks at a Bank of Japan seminar in Tokyo the same day. He said U.S. dollar-based stablecoins could have major consequences for financial stability and economic policy if they grow to a scale close to that of traditional money.

Hernandez de Cos said the current structure of stablecoins falls short of the requirements needed to serve as a widely used means of payment. He nonetheless cited some benefits, including faster cross-border transfers and links with smart contracts.

He also said dollar-based stablecoins such as Tether's USDT and USDC resemble exchange-traded funds more than cash. He pointed to fees and conditions tied to issuance and redemption, as well as instances in which secondary-market prices stray from the $1 peg.

Hernandez de Cos added that stablecoin issuers hold reserve assets such as short-term Treasuries and bank deposits. In times of stress, large redemption requests could force them to sell those assets quickly or increase pressure on banks' funding conditions.