The BIS puts tokenized deposits above stablecoins, at Jackson Hole

What happened

Pablo Hernandez de Cos, general manager of the Bank for International Settlements, argued at the Jackson Hole Economic Symposium on 28 August that tokenized bank deposits, not stablecoins, are the sound way to put money on a programmable ledger. The speech, 'Pushing the monetary frontier: stablecoins and tokenised deposits', tests both against three properties. On singleness he said that where different stablecoins do not exchange at par 'there is no mechanism that enforces singleness'. On integrity he said 'the pseudonymity of public blockchains complicates enforcement of anti-money laundering and combating the financing of terrorism (AML/CFT) rules'. Against that he set the alternative: 'tokenised deposits are account-based bank liabilities recorded on a programmable platform; payments debit the payer's balance and credit the payee's balance, with interbank settlement though central bank accounts in the background.'

Why it matters

This is the BIS's chief executive, at the central bankers' own gathering, offering a case against the instrument that most of the last two years of policy has been built around. The argument is not about risk in the ordinary sense. It is that a stablecoin is a bearer claim on an issuer, and a system of bearer claims cannot guarantee that a pound is a pound wherever it is held, because nothing forces two issuers' tokens to trade at par. A deposit does not have that problem, because settlement between banks runs through the central bank. Whether or not one accepts it, the framing gives supervisors a citable reason to prefer commercial bank tokenization, at the moment banks are building exactly that.

What is not settled

The speech does not ask for stablecoins to be restricted, and suggests the two forms could coexist under adequate oversight, which sits awkwardly beside its own diagnosis: if singleness cannot be enforced between issuers, coexistence is the condition the argument objects to. It does not say what oversight would be adequate, and it does not address the case its own examples raise, which is what happens where the local banking system is the thing people are trying to route around.