BIS workshop explores stablecoin impact on central banks

The workshop explored various scenarios for widespread stablecoin adoption, identifying key drivers such as design features shaped by regulatory standards, access to central bank balance sheets, and the availability of safe short-term assets.

Participants also considered how the emergence of other digital innovations like tokenised bank deposits and CBDCs might complement or substitute stablecoins.

Discussions delved into the potential impact of stablecoins on money markets and banks.

Greater demand for reserve assets backing stablecoins could influence yields, liquidity, and volatility in short-term money and FX markets.

The workshop also addressed how broad stablecoin adoption might affect banks' funding composition, funding costs, and their sensitivity to policy rates, noting the dependence on the composition of these reserve assets.

Specific questions covered the likelihood of fire-sales and the role of redemption arrangements in stress periods.

The workshop extensively covered stablecoins' implications for monetary policy transmission and monetary sovereignty.

Discussions focused on how widespread adoption could impact central banks' ability to set and control interest rates, affecting transmission to bank lending and broader financial conditions.

Participants also examined how stablecoins might influence the role of central bank money, potentially affecting demand for central bank reserves and challenges in controlling the money supply.

The risk of cross-border spillovers, especially for emerging market economies, and the threat to monetary sovereignty from foreign currency stablecoins leading to "dollarisation" were central themes.