Stablecoins and central bank digital currencies (CBDCs) may not live up to their promise of increasing financial inclusion and improving cross-border payments in emerging markets, according to a new report by the Bank for International Settlements.
- According to the report, the most important contribution of stablecoins is that they have drawn attention to the problems of financial inclusion and a lack of efficient international remittance systems. However, stablecoins are “neither necessary nor sufficient” to tackle these challenges, the report said. Moreover, stablecoins have not yet been tested at scale and it is uncertain whether they will offer lasting competitive advantage over emerging digital payment services, it added.
- The report also said that stablecoins pose a number of risks, especially in emerging markets and developing economies, including regulatory and volatility against local currencies risks. Even CBDCs, particularly retail CBDCs, pose their own risks and challenges, the report said. Most notably, there is a risk that during periods of systemic stress, people may suddenly shift from bank deposits and other instruments into CBDCs, creating a digital bank run scenario of unprecedented speed and scale, it added. A bank run refers to a large number of customers suddenly withdrawing their money from the bank because they believe it might stop operating in the near future.
- The report adds that existing fintech innovations like digital payment services may be more suitable to improve financial inclusion and enhance cross-border payments than stablecoins or CBDCs.