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Stablecoins have spent years being pitched as the inevitable future of digital payments, a bridge between traditional finance and the blockchain world. The Bank for International Settlements, the central bank of central banks, is not buying it, and its most senior official is now saying so plainly.
Pablo Hernández de Cos, BIS General Manager and a candidate to succeed European Central Bank President Christine Lagarde in 2026, argued on Friday that stablecoins do not credibly function as a means of payment at scale. Speaking to Reuters, he put forward tokenized bank deposits as the stronger alternative, saying they “offer a more direct path to harness tokenisation while preserving the monetary system’s foundations.”
The Case Against Stablecoins Is More Nuanced Than a Flat Rejection
Hernández de Cos is not dismissing the underlying technology or even all of its effects. He acknowledged that stablecoins could lower government borrowing costs, a point that US Treasury Secretary Scott Bessent has also made publicly. The logic is that stablecoin issuers typically hold large quantities of government debt as reserves, which supports demand for sovereign bonds and can push yields down.
But the BIS chief’s concern is about second-order consequences. If consumers and businesses shift their deposits out of commercial banks and into stablecoins, banks face a shrinking funding base. To compensate, they raise borrowing costs for households and businesses. The benefit to government borrowing, in other words, could come at the expense of ordinary credit conditions in the real economy.
Beyond the macroeconomic plumbing, Hernández de Cos pointed to two structural problems that stablecoin advocates have not convincingly solved. First, interoperability between different stablecoin platforms remains limited, meaning the vision of seamless, universal digital payments is still fragmented in practice. Second, applying anti-money laundering controls consistently across stablecoin networks is genuinely difficult, not merely a regulatory inconvenience.
He also raised the sovereignty question that haunts US dollar-pegged stablecoins specifically. As dollar-denominated tokens circulate more widely outside the United States, they can crowd out local currencies and weaken the ability of central banks in smaller economies to conduct monetary policy. For Southeast Asian regulators, this is not an abstract concern.
A Patchwork of Rules Reveals How Unsettled the Regulatory Picture Remains
The BIS critique landed alongside a study from the BIS-linked Financial Stability Institute, published Thursday, that compared stablecoin regulation across five major markets: the United States, the European Union, the United Kingdom, Hong Kong, and Singapore. The findings show just how far the world is from a coherent global framework.
Singapore and the US take the most restrictive positions on what non-bank stablecoin issuers are permitted to do. Under the US GENIUS Act, payment stablecoin issuers are generally prohibited from lending, staking, proprietary trading, and holding third-party crypto assets in custody. Singapore’s framework follows a similarly tight perimeter around permitted activities.
Hong Kong, the UK, and the EU are comparatively more permissive, allowing issuers to conduct additional activities provided they obtain separate authorization or regulatory consent. The practical effect is that a stablecoin issuer operating under EU or Hong Kong rules can engage in a broader range of business than one operating under US or Singaporean rules, even if the core issuance activity looks similar on the surface.
The FSI researchers also identified a structural gap common to all five jurisdictions. Restrictions apply to the stablecoin-issuing entity itself, not to the broader corporate group it belongs to. This means a parent company or affiliate can legally conduct activities that the regulated issuer cannot, creating potential for regulatory arbitrage within the same corporate structure. That finding is significant because it suggests current frameworks may be tighter on paper than they are in practice.
What This Means for Singapore and the Region
Singapore is already one of the more active stablecoin regulatory environments in Asia. The Monetary Authority of Singapore introduced its stablecoin regulatory framework in 2023, and the FSI study confirms that MAS sits in the more restrictive camp alongside the US. That positioning reflects MAS’s broader philosophy of permitting innovation within clearly defined guardrails, prioritizing financial stability over speed to market.
The BIS critique of dollar-pegged stablecoins carries particular weight for ASEAN economies. Several countries in the region have currencies that are already sensitive to dollar dominance in trade and capital flows. A significant expansion of dollar stablecoin usage in retail and business payments across the region could complicate the task of domestic monetary management, giving regional central banks an additional reason to watch the BIS’s position closely.
For businesses and investors in Malaysia and Singapore evaluating stablecoin-based payment infrastructure, the regulatory divergence documented by the FSI study is the most immediately practical takeaway. A stablecoin that is compliant in Singapore may operate under meaningfully different constraints than one structured for the EU or Hong Kong market, and the corporate group structure of an issuer matters as much as the issuer entity itself.
The Tokenized Deposit Alternative Is Not Yet a Real Product
Hernández de Cos’s preferred alternative, tokenized bank deposits, deserves scrutiny too. The concept involves representing conventional bank deposits as digital tokens on a blockchain, preserving the existing credit relationship between a customer and a regulated bank while gaining the programmability and transferability of a blockchain-based asset. In theory, this keeps monetary policy transmission intact and maintains deposit insurance protections.
In practice, tokenized deposits are still largely at the pilot and proof-of-concept stage. Several central banks and commercial banks are experimenting with the technology, but no jurisdiction has deployed it at consumer scale. Positioning tokenized deposits as the credible alternative to stablecoins is a reasonable long-term argument, but it is not yet a working solution that can be pointed to as evidence.
That gap matters for how the BIS critique is received. The argument that stablecoins fail at scale is strengthened if a viable alternative exists. Right now, the alternative is still being built, which means the debate is less about stablecoins versus tokenized deposits and more about what kind of digital money architecture the world wants to build before either option reaches maturity. The BIS is trying to shape that architecture before the market decides for itself.
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