Stablecoins have not reached the true currency standard, the bank for international settlements report pointed out

The Bank for International Settlements (BIS) recently released its annual report, examining the new generation of financial innovations. The report pointed out that digital assets pegged to fiat currencies fail to meet the three key criteria required to become a pillar of the monetary system: uniqueness, resilience, and completeness.

The BIS stated that the role of innovations such as stablecoins in the future monetary system remains unclear. Although they have advantages in certain aspects, such as programmability, a certain degree of anonymity, and convenient user access, they perform poorly in terms of the three ideal characteristics of sound monetary arrangements, making it difficult for them to become a core component of the future monetary system.

The report acknowledges that stablecoins have advantages in certain situations, particularly in the field of cross-border payments, where they may offer lower costs and faster speeds. However, compared to currencies issued by central banks and tools issued by the private sector, such as commercial banks, stablecoins may undermine government monetary sovereignty and even foster illegal activities, posing risks to the global financial system.

Specifically, stablecoins have structural flaws in terms of elasticity testing. Taking USDT as an example, its issuance requires full prepayment, and this "prepayment constraint" limits its flexibility. Additionally, stablecoins are usually issued by centralized entities, and different issuers may set different standards, failing to meet the currency's "uniqueness" requirement. This situation is similar to the private banknotes during the American free banking era in the 19th century, where different stablecoins might trade at different exchange rates, undermining the uniformity of the currency.

There are also significant issues with stablecoins in promoting the integrity of the monetary system. Due to the lack of unified Know Your Customer (KYC) and Anti-Money Laundering (AML) standards, stablecoins find it difficult to effectively prevent financial crimes.

Despite a cautious attitude towards stablecoins, the BIS is optimistic about the potential of tokenization technology. The report suggests that a tokenized platform centered around central bank reserves, commercial bank money, and government bonds is expected to lay the foundation for the next generation of currency and financial systems, becoming a revolutionary innovation in areas ranging from cross-border payments to the securities market.

Overall, the BIS report raises serious questions about the current state of stablecoins, while also pointing out possible directions for future financial innovation. As digital finance continues to evolve, finding a balance between innovation and stability will be a challenge that regulators and market participants will face together.