PIONEER EDGE NEWS SERVICE
Stablecoins have emerged as one of the fastest-growing forms of digital money, offering instant cross-border transfers and programmable payments. However, according to the latest Annual Economic Report of the Bank for International Settlements (BIS), they still cannot be trusted in the same way as sovereign currencies issued by central banks.
The report explains that the strength of conventional money lies in the public’s unquestioned confidence that every unit has the same value. A ₹100 note is accepted without hesitation because it is backed by the Reserve Bank of India (RBI), ensuring what the BIS describes as the “singleness” of money—a trust built over centuries.
Stablecoins, by contrast, are privately issued digital tokens designed to maintain a fixed value, typically pegged to the US dollar. Traded on public blockchain networks, they offer round-the-clock global transfers and programmable features, such as releasing payments automatically after contractual conditions are met. More than 99 per cent of all stablecoins currently in circulation are linked to the US dollar.
Despite these advantages, the BIS cautions that stablecoins do not provide the same level of reliability as traditional money. Their value can occasionally deviate from the intended peg, and transactions conducted on open blockchain networks are more vulnerable to misuse for money laundering and other illicit activities due to limited oversight.
The report also highlights potential risks for emerging economies such as India. In countries where confidence in the domestic currency weakens, people may increasingly hold dollar-backed stablecoins as a store of value. This trend, described as “stablecoin dollarisation”, could weaken the effectiveness of monetary policy by enabling rapid movement of funds across borders and reducing the central bank’s control over the financial system.
Another concern is the impact on banks. If households and businesses move significant portions of their savings from bank deposits into stablecoins, banks would have fewer deposits available for lending, potentially making credit more expensive and slowing economic activity.
Rather than advocating restrictions, the BIS recommends stronger regulation of stablecoins to protect users and contain financial risks. At the same time, it argues that the technological advantages of stablecoins—including faster settlements and programmable payments—should be incorporated into the regulated banking system and anchored by central bank money.
The report concludes that money is ultimately founded on trust, not technology alone. As India continues to shape its digital asset framework, the BIS suggests that innovation should reinforce the credibility and stability of the monetary system rather than undermine it.
