Tokenized deposits are more likely than stablecoins to perform the role of money, Bank for International Settlements General Manager Pablo Hernández de Cos said Friday (Aug. 28).
In a speech delivered at the Jackson Hole Economic Symposium, hosted by the Federal Reserve Bank of Kansas City, de Cos said that while both technologies use tokenization, they have important differences in terms of the monetary system.
In terms of singleness, or the ability of monetary units to be redeemed at par into central bank money, stablecoins fall short because there is no mechanism to enforce singleness and because transactions may not go through at par when one type of stablecoin must be sold in a secondary market to purchase another type, de Cos said.
Tokenized deposits, on the other hand, are account-based bank liabilities, have interbank settlement through central bank accounts in the background, and preserve singleness, de Cos said.
In terms of interoperability across instruments and platforms, stablecoins may not be interoperable on different chains without risky or costly workarounds, de Cos said.
Tokenized deposits typically circulate on permissioned platforms that are also not genuinely interoperable, but the introduction of tokenized central bank reserves as a safe settlement asset would make them more fungible across banks and more interoperable, de Cos said.
In terms of financial integrity, or the ability to flow at par without undermining the rule of law, stablecoin balances are largely held in self-custodied wallets and are increasingly transferred from wallet to wallet, which complicates the enforcement of anti-money laundering and combating the financing of terrorism (AML/CFT) rules, de Cos said.
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