Stablecoin implosion shows it has ‘no role’ as a form of money, says Bank of International Settlements’ Asia chief

Name: SCMP
Telephone: +852-2680-8888

The recent collapse of stablecoins shows their attempt to peg to the dollar does not in fact make them stable, says the Asia-Pacific head of BIS

Central banks are better placed to provide the core of the future monetary system, he said

Reading Time:3 minutes

Why you can trust SCMP

TerraUSD saw its value plunge to almost nothing in May from being the third-largest stablecoin with a US$18.7 billion market capitalisation at its peak. Photo: Shutterstock

Georgina Lee

Published: 5:45pm, 26 Jun 2022Updated: 9:49am, 27 Jun 2022

The recent collapse in the value of stablecoins shows they are ill-suited as a form of money and that their attempt to piggyback on money issued by central banks does not give them the stability their name suggests, according to the Asia-Pacific head of the Bank of International Settlements (BIS).

The implosion of several stablecoins, including TerraUSD which saw its value reduced to almost nothing in May from being the third-largest with a US$18.7 billion market capitalisation at its peak, has revealed the pitfalls of cryptocurrencies, said Siddharth Tiwari, chief representative of the BIS Asian office.

“Recent events show that stablecoin fails to achieve the full network effect we would normally expect of money,” said Tiwari. “But the innovation that they bring is important for us, and could be useful for the design of central bank digital currencies.”

Stablecoins differ from cryptocurrencies such as bitcoin and ethereum in that their value is pegged to another asset, often a fiat currency or a commodity, theoretically making them immune to wild price swings.

01:36

Colombian entrepreneur creates cryptocurrency to cut export costs for selling bugs to Japan

However, in the case of so-called algorithmic stablecoins such as TerraUSD, the link to the value of the underlying asset can be somewhat tenuous and, as the recent collapse demonstrated, fragile.

Stablecoin implosion shows it has ‘no role’ as a form of money, says Bank of International Settlements’ Asia chief

The recent collapse of stablecoins shows their attempt to peg to the dollar does not in fact make them stable, says the Asia-Pacific head of BIS Central banks are better placed to provide the core of the future monetary system, he said

The recent collapse of stablecoins shows their attempt to peg to the dollar does not in fact make them stable, says the Asia-Pacific head of BIS

Central banks are better placed to provide the core of the future monetary system, he said