Trust in digital money key for future financial system
The Bank for International Settlements (BIS) outlined a path to the next-generation monetary system, emphasizing innovation while safeguarding trust in money. A special chapter of its Annual Economic Report 2026 assesses evolving financial architectures.
Stablecoins' structural flaws
The Bank for International Settlements (BIS) emphasizes that current stablecoin designs lack key properties for ensuring trust in money, particularly 'singleness' – the ability to redeem different forms of money at par for central bank money.
Their circulation on public, permissionless blockchains introduces challenges for resilience against financial crime, redeemability, and interoperability.
Wider stablecoin adoption risks significant changes in bank funding and credit provision, potentially posing financial stability challenges.
High global demand for mostly USD-denominated stablecoins could also make capital flows more volatile, challenging monetary sovereignty in economies with weaker fundamentals.
Conversely, integrating digital innovation like tokenisation into the existing two-tier financial architecture, with central banks as monetary anchors and commercial banks providing services, can unlock new possibilities such as programmable payments.
Global coordination for a unified ledger
Modernising the financial system requires global coordinated policy efforts on two fronts.
In the near term, tackling weaknesses of current stablecoin architecture is key, with appropriate regulatory measures depending on their scale of use.
For the longer term, the report outlines how technological innovation can be brought into the two-tiered system.
A 'unified ledger' that integrates different forms of tokenised money could help harness digital benefits while preserving trust.
The Project Agorá prototype, involving eight central banks and over 40 regulated institutions, showcases this potential by improving wholesale cross-border payments through a shared platform for tokenised commercial bank deposits and central bank reserves.
Regulated innovation, not disruption
The BIS clearly positions itself as a proponent of controlled digital innovation, seeking to integrate new technologies within the established two-tier system.
This approach aims to preempt uncontrolled disruption from private digital currencies, particularly stablecoins, by emphasizing central bank oversight and coordination.
The report serves as a strategic blueprint for central banks to actively shape the future of money.