Why the BIS Just Declared War on Stablecoins as Payment Infrastructure

The Line in the Sand

Agustín Carstens, managing director of the Bank for International Settlements, did something unusual at the Jackson Hole symposium on August 28: he publicly dismissed stablecoins as unsuitable for large-scale payment systems. More notably, he positioned tokenized bank deposits as the superior alternative. The statement was precise, specific, and far-reaching in its implications.

It is not just a technical preference. It is a declaration about who controls the architecture of global settlement — and who does not.

Why Stablecoins Fail the Test

Carstens laid out several reasons. First, stablecoins disrupt the single-monetary-character of a currency. When users shift between different pegged tokens — a dollar token here, a euro token there, a private-issuer peso token elsewhere — the cost of switching fragments what should be a unified monetary unit. That fragmentation, he argued, undermines the very foundation of a sovereign currency.

Second, stablecoin platforms lack genuine interoperability. They operate as walled gardens, each with its own governance, compliance standards, and settlement logic. A system that cannot natively interconnect across borders is not a payment infrastructure — it is a collection of private clearinghouses.

Third, the risk of dollarization looms large. Widespread adoption of dollar-pegged stablecoins outside the United States erodes monetary sovereignty. Countries that see their citizens move into dollar stablecoins experience weakened transmission of domestic monetary policy, reduced capacity to set interest rates meaningfully, and an economy that becomes externally dependent on Federal Reserve decisions it cannot influence.

Fourth, bank disintermediation is a real threat. If depositors move funds from banks into stablecoins, banks face higher funding costs. Those costs flow through to everyday borrowers — businesses and households alike — raising the price of credit in the real economy.

The Tokenized-Deposit Counterproposal

Carstens did not reject tokenization outright. He championed tokenized bank deposits — essentially, commercial bank liabilities represented on distributed ledger technology, still backed by traditional banking relationships and regulation. The key distinction: these remain within the supervised banking system, preserving monetary sovereignty and financial stability guardrails.

He acknowledged unresolved challenges — interoperability, governance, legal barriers — but argued this path maintains the foundation of the monetary system while unlocking the efficiency gains of tokenization. It is a more conservative vision. It is also, arguably, the one most likely to be adopted by central banks and regulators who bear responsibility for financial stability.

The US Dollar Dilemma

Here is where the story gets politically interesting. US Treasury Secretary Scott Bessent has described dollar-pegged stablecoins as a potential digital revolution that could reinforce the dollar’s reserve currency status and generate trillions in demand for US Treasuries — since most major stablecoins are backed by short-term US government debt. That is a strategic argument, not a technical one. Stablecoins, in this framing, are a force multiplier for dollar dominance.

Carstens’ position complicates that strategy. By steering the global conversation toward tokenized deposits rather than private stablecoins, the BIS is effectively saying: if you want digital dollars for settlement, they should come through regulated banks under central bank oversight, not through privately issued tokens that bypass the traditional financial system.

This is not anti-dollar. It is pro-central-bank. And the distinction matters enormously for the architecture of international payments.

China’s Exposure

China’s cross-border payment ambitions are directly affected. Projects like mBridge — a multi-CBDC platform developed with the Hong Kong Monetary Authority and other central banks — represent exactly the kind of tokenized, institutionally anchored approach Carstens is advocating. China’s alternative, however, has included greater tolerance for private stablecoin innovation in special economic zones and closer financial ties with crypto-friendly jurisdictions.

If the BIS consensus crystallizes around tokenized deposits rather than private stablecoins, China faces a choice: align with the institutional path and compete on CBDC interoperability, or pursue a divergent track that risks isolation from the mainstream of regulated digital payment infrastructure. The latter option cedes the high ground in standard-setting — precisely where the US and Europe are investing heavily.

Who Wins, Who Loses

Winners: Established banks that can tokenize deposits and retain their intermediary role. Central banks that maintain monetary policy control. Regulators who get to set the rules. Countries that prefer regulated corridors over chaotic private token ecosystems.

Losers: Stablecoin issuers whose value proposition hinges on being outside the banking system. Jurisdictions with weak monetary sovereignty that may benefit from dollar stablecoin adoption. Crypto-native payment platforms built on fragmented, non-interoperable architectures.

The wildcard: The United States. A tokenized-deposit framework still extends dollar usage globally — but through channels that give the Federal Reserve and US regulators visibility and leverage that private stablecoin ecosystems currently lack. That may be acceptable to some US officials and deeply uncomfortable to others.

What Comes Next

The immediate implication is a regulatory and standard-setting race. The BIS’s stance gives momentum to proposals for tokenized-deposit frameworks worldwide — the Fed’s recent guidance on digital asset servicing, the ECB’s digital euro design debates, Japan’s ongoing stablecoin regulatory consultations. All of these will now reference the Carstens framework as a benchmark.

The longer-term consequence is structural. If tokenized deposits become the dominant form of institutional digital payment infrastructure, the global settlement system looks more like an upgraded version of the current banking architecture than a revolution built on private tokens. That favors incumbents. It slows disruptive innovation. And it concentrates standard-setting power in central banks and regulated institutions — exactly where the BIS wants it.

The stablecoin industry will push back. Its advocates will argue that Carstens is protecting bank monopolies and ignoring the efficiency gains of competition. Some of that criticism will be valid. But the BIS has moved the Overton window: the question is no longer whether tokenization should happen, but whether it should happen inside or outside the regulated banking system. That framing shift alone will shape the next decade of monetary infrastructure.