BIS Introduces a Note of Caution

The Bank of International Settlements (BIS) has issued a paper ‘What does digital money mean for emerging market and developing economies?’. The paper questions whether stablecoins are the answer to all problems and whether other digital solutions have a role to play.

It makes the point that stablecoins and crypto currencies are as yet untested as a tool for more efficient movement of money across borders and for increasing financial inclusion in emerging market and developing economies (EMDE). It notes that they could introduce risks into the financial system.

The traditional banking model can be inaccessible and relatively expensive for EMDE’s, hence their interest in stablecoins and CBDCs. But the paper says, ‘Stablecoin arrangements aspire to improve financial inclusion and cross-border remittances – but they are neither necessary nor sufficient to meet these policy goals.’ 

Stablecoins have not been tested at scale and it is not clear that they will perform better than other digital payment services, mobile banking, improvement on existing transfer services such as SWIFT and e-money. They may even introduce new challenges and risks for EMDE’s.

The report concluded by looking at CBDCs and highlighted that these bring their own policy challenges, ‘While research is ongoing, it is not yet clear whether CBDCs are necessary or desirable for all jurisdictions.’