Banking and Finance Law Daily Wrap Up, FINANCIAL TECHNOLOGY—Would tokenized deposits offer safer path than stablecoins for future monetary system?, (Aug 31, 2026)

By Shashi Kant, BALLB, LLM.

A Bank for International Settlements official said stablecoins do not meet money’s foundations, while tokenised deposits offer a safer path.

Pablo Hernández de Cos, General Manager of the Bank for International Settlements (BIS), said in a speech at the Jackson Hole Economic Symposium that stablecoins, in their current form, do not uphold the foundational properties of money. A monetary system built on tokenised deposits looks more promising, he said, though significant practical challenges remain before it can be scaled.

Hernández de Cos said an effective monetary system rests on a common unit of account and the singleness of money, under which monetary instruments are redeemable at par into central bank money with finality. Today’s two-tier system is anchored by central bank money and delivered through supervised private intermediaries. It is generally robust, in his account, but remains burdened by patchy interoperability, constrained competition and inefficient cross-border payments.

Singleness, interoperability and integrity. Hernández de Cos said stablecoins and tokenized deposits both use tokenization to transfer value on programmable rails but differ in ways of first-order importance for the monetary system. No mechanism enforces singleness for stablecoins, he argued, because a transfer between holders of different stablecoins may require a secondary-market exchange that does not occur at par. Tokenized deposits, by contrast, are account-based bank liabilities settled through central bank accounts in the background. That, on his account, preserves singleness.

Most fiat-referenced stablecoins circulate on public, permissionless blockchains fragmented across base networks and scaling layers, he noted. Even the same stablecoin is therefore not interoperable across chains without risky or costly workarounds. Tokenized deposits typically circulate on permissioned platforms that are also not genuinely interoperable. Introducing tokenized central bank reserves as a settlement asset would make them more fungible across banks, he argued. The pseudonymity of public blockchains complicates enforcement of anti-money laundering and counter-terrorist financing rules, he said, with the majority of stablecoin balances held in self-custodied wallets. That contrasts with traditional money, where bank deposits, the least anonymous instrument, dominate. The integrity challenge is more manageable in the account-based, supervised environment of tokenized deposits, he added.

Macro-financial implications. The macro-financial effects of large-scale stablecoin adoption would depend on the composition of issuers’ reserve assets, he said, whether held as wholesale bank deposits, short-term government bills or central bank reserves. Each configuration would likely weaken banks’ liquidity metrics initially. The effects would weigh more heavily on smaller banks. He cited BIS research pointing to a modest net output effect overall from these competing channels. Outcomes would be shaped by reserve composition, public debt levels and foreign demand for stablecoins. Tokenized deposits, by operating within the existing two-tier system, preserve the link between deposit-taking and credit provision and reduce disintermediation risk, he said. He cautioned that adoption limited to siloed, bank-by-bank networks could widen competitive imbalances between larger and smaller institutions.

What stablecoins would need. Three sets of questions must be addressed, he said, before stablecoins could function as a means of payment at scale: whether redemption at par can be enforced in all states of the world; how settlement finality can be preserved across blockchains; and how anti-money laundering controls can be applied consistently, including to peer-to-peer transfers. Growing adoption of dollar-pegged stablecoins has also raised concerns in some jurisdictions about monetary sovereignty and digital dollarisation. He warned this could weaken domestic monetary policy transmission over time.

Case for tokenized deposits. Tokenized deposits offer a more direct path to harnessing tokenization while preserving the monetary system’s foundations, he said. He acknowledged that no multi-bank or inter-jurisdictional interoperable ecosystem currently exists. He listed interoperability, governance and access rules, and legal clarity on settlement finality among the remaining challenges. He pointed to Project Agorá, in which central banks and private institutions tested wholesale cross-border payments settling atomically across currencies using tokenized commercial bank money, as evidence that public-private experimentation is showing feasibility.

Coexistence and central bank priorities. Stablecoins and tokenized deposits could coexist, he said, if their roles are clearly delineated, with tokenized deposits carrying the bulk of day-to-day payments and wholesale settlement, and stablecoins confined to specialised roles such as decentralised lending pools or treated explicitly as investment products with conduct and disclosure rules. Central banks should pursue three priorities, he added: anchoring singleness on programmable rails through access to central bank money; promoting interoperability and integrity through common technical standards and cross-border supervisory cooperation; and taking a system-wide view of how design choices affect credit supply, financial stability and monetary transmission. The effects of widespread stablecoin adoption on bank funding costs appear modest in the model-based scenarios in the BIS’s Annual Economic Report, he said, but warrant close monitoring under stress. Sound macroeconomic policies and efficient domestic payment systems remain the best safeguard against undue stablecoinization.

Companies: Bank for International Settlements

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