In line with its ongoing skepticism regarding the cryptocurrency industry, the Bank for International Settlements (BIS) has published a new report on stablecoins that seems to support the institution’s views that they cannot become a means of storing value nor a trustworthy means of payment.
As it happens, the BIS concluded that none of the 68 stablecoins it overviewed could remain true to its name – being “stable,” arguing that “not one of them has been able to maintain parity with its peg at all times (…) irrespective of their size or type of backing,” according to the study published on November 8.
“For these reasons, we conclude that the stablecoins in circulation today do not meet the key criteria for being a safe store of value and a trustworthy means of payment in the real economy.”
BIS’s Anti-stablecoin Arguments
Indeed, the BIS’s analysts stated that “there is no guarantee that stablecoin issuers could redeem users’ stablecoins in full and on demand” and highlighted “significant data gaps” that make it “difficult to ascertain the risks of stablecoins to the smooth functioning of payment systems and financial stability more broadly.”
Read Also: Stablecoins Present Innovative Opportunities But Also Pose A Threat
As one of the examples of stablecoins’ inability to stay immune to the wider market turmoil, the report mentions the collapse of Silicon Valley Bank (SVB) in March 2023, which has led to an outflow of $5.8 billion in USD Coin (USDC) in a week as its issuer, Circle, held United States dollar reserves with SVB.
Therefore, the BIS’s analytics team has deduced that stablecoins generally cannot keep their closing prices at parity with their peg and that their intraday deviations in prices and from the peg make them a poor choice for safely storing value or as a means of payment, regardless of the stablecoin type.
BIS vs. Cryptocurrencies
Meanwhile, the institution’s conclusions regarding stablecoins do not stray far from its views of cryptocurrencies in general, which it considers a “flawed system, with only tenuous connection to the real world,” arguing that central bank money “is a much firmer foundation.”
Despite such criticism, the BIS’s Basel Committee on Banking Supervision (BCBS) has allowed banks to hold 1% of their reserves in crypto assets such as Bitcoin (BTC), in line with the Basel Framework, which includes all the BCBS’s standards, as Finbold reported on June 30.
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Source: https://bitcoinworld.co.in/stablecoins-cant-be-trustworthy-payment-means-bis/