Augustin Carstens, the chief executive of the Bank of International Settlements (BIS), claims that the events of 2022 cast serious doubt on the extent to which stablecoins can function as money. With this, Carstens is of course referring to the implosion of Terra and its TerraUSD stablecoin. But that is a kind of stablecoin that you cannot basically compare to the stablecoins of Tether and Circle, which are backed by fiat money and government bonds.
Fear of stablecoins
Several powerful entities within the financial world, including the BIS and the Financial Stability Board (FSB), have already expressed their doubts about stablecoins. For the FSB, the main concern is the threat to the stability of the global financial system. At the time of writing, the stablecoin industry is still relatively small, but that could change quickly, according to this powerful institution.
The BIS is also anxious about the development and emergence of this special type of coins. Carstens previously shared that he fears that stablecoins could cause power over the monetary system to seep away from central banks and flow towards private entities through stablecoins.
However, according to Carstens, there are also lessons to be learned from the emergence of stablecoins for policymakers. “Stablecoins also emerged because they offer technical capabilities that traditional forms of money do not possess,” said Augustin Carstens.
Experimenting with new technology
According to Carstens, it is time for central banks to embrace the new technology and use it to improve the monetary system. If they don’t, he believes it’s only a matter of time before the private sector steps in and takes over some of the power.
In 2021, the BIS signaled all that central banks around the world had to start looking into digital currencies. Now there are more than 100 jurisdictions worldwide that are considering marketing a digital equivalent of their national currencies. Although there are still few projects that have really started and achieved a successful degree of adoption.
