Stablecoins do not yet credibly function as a payment method at scale, Bank for International Settlements General Manager Pablo Hernández de Cos said on Aug. 28 at the Federal Reserve’s Jackson Hole symposium.

In his official BIS speech, de Cos argued that tokenized bank deposits provide a stronger route to programmable payments. They remain within the existing banking system and settle through central bank money.

“Tokenised deposits offer a more direct path to harness tokenisation while preserving the monetary system’s foundations,” de Cos said.

However, he did not call for a complete ban on stablecoins. He said stablecoins and tokenized deposits could coexist if regulators defined their roles and imposed appropriate safeguards. Under his preferred model, tokenized deposits would handle most daily and wholesale payments. Stablecoins would serve narrower functions, including decentralized lending.

The speech came one day after the BIS-linked Financial Stability Institute published a study comparing stablecoin regulations in the United States, European Union, United Kingdom, Hong Kong and Singapore. The report found wide differences in which entities may issue stablecoins and which additional activities they may conduct.

Stablecoins struggle to meet three features of money

De Cos assessed stablecoins against three characteristics he considers central to a functioning monetary system: singleness, interoperability and financial integrity.Singleness means different forms of money denominated in the same currency remain redeemable at equal value. A dollar held in one regulated bank should have the same value as a dollar held in another bank.

Stablecoins do not always meet this condition in secondary markets. A user holding USDT may need to sell it before buying USDC when a recipient accepts only the latter. Either token can trade above or below one dollar during stress, meaning the exchange may not occur at par.

By contrast, tokenized deposits remain liabilities of regulated commercial banks. Transfers can debit one customer’s bank balance and credit another while the banks settle through central bank accounts. De Cos argued that this arrangement preserves the connection to central bank money.

Interoperability presents another challenge. Stablecoins operate across several blockchains and scaling networks. Moving the same token between chains often requires bridges, centralized intermediaries or wrapped assets. Each method introduces operational, custody or smart-contract risks.

Tokenized deposits also face interoperability problems. Most current projects operate through permissioned networks that do not communicate freely with other platforms. De Cos acknowledged that no multi-bank, cross-border tokenized deposit system currently operates at full commercial scale.

Financial integrity formed his third concern. Public blockchains allow users to hold and transfer assets without relying on a regulated custodian. This structure can make anti-money laundering and counterterrorist financing controls harder to apply consistently.

That concern does not mean every self-custody transaction is illicit. It means regulators cannot always identify the parties as easily as they can within a bank account system. De Cos said policymakers still need to determine how AML rules should apply to peer-to-peer transfers while protecting privacy.

The BIS chief had already warned that dollar-backed tokens could create financial stability risks if they grow without traditional banking safeguards.

Stablecoin growth creates opposing economic effects

Stablecoin adoption could increase demand for short-term government debt. Issuers commonly hold Treasury bills and other liquid assets to back their circulating tokens.

The U.S. Treasury Department has noted that the GENIUS Act requires permitted payment stablecoins to maintain one-for-one reserves. Eligible assets include cash, deposits, repurchase agreements and Treasury securities with remaining maturities of 93 days or less.

Treasury Secretary Scott Bessent has argued that stablecoin growth could strengthen international demand for dollars and U.S. government debt. When the GENIUS Act became law in July 2025, Bessent called stablecoins “a revolution in digital finance” that could generate additional Treasury demand.

De Cos accepted that stablecoins could lower government borrowing costs, particularly when demand comes from outside the United States. Foreign stablecoin users can create additional demand for Treasury bills rather than merely replacing existing domestic buyers.

However, he said the effect could work against private borrowers. If households move money from bank deposits into stablecoins, banks may lose a relatively stable and inexpensive source of funding.

Issuers could return part of that money to banks as wholesale deposits. Yet wholesale funding tends to be more concentrated and sensitive to interest rates. Banks could respond by raising loan prices or holding more liquid assets.Smaller lenders could face greater pressure because they rely more heavily on customer deposits. Higher funding costs could then reach households and small businesses through more expensive credit.

The reserve structure also creates possible contagion channels. A wave of stablecoin redemptions could force an issuer to sell Treasury bills or withdraw large bank deposits. Such movements could place pressure on short-term funding markets during periods of stress.

These outcomes remain scenarios rather than confirmed forecasts. De Cos cited BIS modeling that found a modest overall economic effect, with the result depending on reserve composition, government debt and whether stablecoin demand originates domestically or abroad.

Five markets apply different stablecoin rules

The Financial Stability Institute study examined regulatory frameworks in five major markets. It found that all five generally limit issuers to functions such as issuance, redemption and reserve management.

The frameworks differ over lending, staking, proprietary trading and custody. The United States and Singapore take relatively restrictive approaches toward specialized non-bank issuers.

Under the U.S. GENIUS Act, activities such as lending, staking, proprietary trading and custody of third-party crypto assets generally fall outside a payment stablecoin issuer’s core permissions. Separate entities or regulatory approvals may still support some related services.

The European Union, United Kingdom and Hong Kong allow certain additional activities when issuers obtain separate authorization, regulatory consent or other required permissions. Banks may also operate under broader prudential frameworks than specialized issuers.

The study identified a potential group-level gap. Restrictions generally apply to the legal entity issuing the stablecoin, not every company within its corporate group.

A related affiliate could therefore conduct activities that the issuer cannot perform directly. Banks already face consolidated supervision designed to capture risks across their groups. Non-bank stablecoin businesses may not face an equivalent system in every jurisdiction.

The FSI authors said regulators may need to extend group-level oversight to larger non-bank issuers. The publication states that its conclusions represent the authors’ views and do not necessarily reflect the position of the BIS or its member central banks.

Meanwhile, the U.S. Treasury continues implementing the GENIUS Act. In April, it proposed AML and sanctions rules that would treat permitted payment stablecoin issuers as financial institutions under the Bank Secrecy Act.

The proposal would require issuers to maintain systems for blocking, freezing or rejecting transactions when legally required.

Tokenized deposits still face practical barriers

Tokenized deposits are digital representations of commercial bank deposits recorded on programmable infrastructure. They remain claims against banks rather than claims against separate stablecoin issuers.

Their main advantage is institutional. Banks already operate within capital, liquidity, resolution, supervision and customer-protection frameworks. Settlement through central bank money can also preserve equal value between deposits at different institutions.

Still, tokenized deposits have not solved every technical problem. Separate bank networks can become closed systems with trapped liquidity. Smaller institutions may struggle with implementation costs and network effects that favor larger banks.

Continuous operation also brings risk. Round-the-clock transfers could accelerate deposit withdrawals during a crisis. Banks and central banks may need new liquidity arrangements capable of responding outside traditional operating hours.

Legal questions remain around settlement finality, smart-contract enforcement and correcting mistaken transactions. Tokenized systems must also operate alongside existing banking infrastructure during any long transition.

The BIS is testing these ideas through Project Agorá, which brings together seven central banks and more than 40 private financial institutions. The project has tested cross-border settlement using tokenized commercial bank money and central bank reserves.

As crypto.news reported, the project moved from prototype work toward real-value testing in 2026. However, those trials do not establish that tokenized deposits are ready to replace existing payment networks.

De Cos’s position therefore presents tokenized deposits as the stronger institutional model, not a finished global product. Stablecoins already have wider public-blockchain distribution, while tokenized deposits retain a closer connection to regulated money.

What happens next?

Regulators must now turn broad principles into detailed operational requirements. In the United States, agencies are continuing to implement reserve, licensing, sanctions and AML provisions under the GENIUS Act.

Other jurisdictions will continue applying their own frameworks. Differences between the five markets could encourage issuers to choose structures or locations with broader permissions.

The FSI study suggests that regulators will pay closer attention to entire corporate groups, especially when non-bank affiliates provide lending, staking, trading or custody services around an issuer.

For central banks, the next step involves expanding tokenized settlement experiments while developing common technical and legal standards. Stablecoins are unlikely to disappear from this process. De Cos instead expects them to occupy specialized roles under rules that support redemption, transparency and financial integrity.

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