Stablecoins did not pass the "three key tests," the bank for international settlements believes they are not real currency.

The Bank for International Settlements ( BIS ) recently released a report questioning the monetary attributes of stablecoins. The report pointed out that digital assets pegged to fiat currencies failed to pass the "three key tests" required to become a pillar of the monetary system: uniqueness, elasticity, and integrity.

The BIS stated in its annual report assessing the new generation of financial technologies: "The role of innovations such as stablecoins in the future monetary system remains unclear. However, when measuring the three ideal characteristics that sound monetary arrangements should possess, their performance is unsatisfactory, making it difficult for them to become a core pillar of the future monetary system."

The report's authors acknowledge that stablecoins do have some advantages, such as programmability, pseudonymity, and user-friendly access methods. In addition, their technical features may also lead to lower costs and faster transaction speeds, especially in the field of cross-border payments.

However, compared to the currencies issued by central banks and the instruments issued by commercial banks and other private entities, stablecoins may pose risks to the global financial system by undermining government monetary sovereignty (sometimes through "covert dollarization") and fueling illegal activities.

Although stablecoins play an important role in the cryptocurrency ecosystem and are increasingly popular in countries with high inflation, capital controls, or difficulties in obtaining US dollar accounts, the BIS believes that these assets should not be considered equivalent to cash.

Detailed Explanation of Three Key Tests

In terms of stress testing, stablecoins have failed due to their structural design. Taking USDT as an example, this stablecoin is backed by "nominally equivalent assets," and any "additional issuance requires holders to prepay in full," which imposes a "pre-paid cash constraint."

In terms of uniformity, stablecoins also fail to meet the requirements. Unlike central bank reserves, stablecoins are typically issued by centralized entities, which may set different standards and may not always provide the same settlement guarantees. The report states: "Holders of stablecoins will label the name of the issuer, just like the private banknotes that circulated during the free banking era in the United States in the 19th century. Therefore, stablecoins are often traded at different exchange rates, undermining the uniformity of the currency."

Stablecoins also have "significant flaws" in promoting the integrity of the monetary system. This is because not all issuers adhere to standardized KYC and AML guidelines and are unable to effectively prevent financial crime.

The Potential of Tokenization

Although the BIS has expressed concerns about stablecoins, the organization remains optimistic about the potential of tokenization, considering it a "revolutionary innovation" from cross-border payments to securities markets.

The report author stated: "A tokenized platform centered on central bank reserves, commercial bank currency, and government bonds can lay the foundation for the next generation of currency and financial systems."

The release of this report has triggered market reactions. Some companies related to stablecoins have seen fluctuations in their stock prices, reflecting investors' concerns and expectations about the prospects of this emerging field.

Overall, although the BIS is cautious about stablecoins, its report also affirms the potential of blockchain and tokenization technology in financial innovation. This indicates that future monetary and financial systems may integrate the advantages of traditional finance and emerging technologies to create a more efficient and inclusive global financial ecosystem.