Redemptions also aren’t as smooth as widely perceived, meaning investors converting a stablecoin back to cash may not always get an instant, guaranteed exchange at par value, much like ETF share redemptions can involve delays or costs depending on the fund structure.
“Redemption frictions are common, indicating that current stablecoin designs resemble exchange-traded fund (ETF) shares rather than means of payment,” the report said.
More importantly, stablecoin transfers “settle neither directly nor indirectly on central bank balance sheets,” and “they cannot currently ensure exchange at par across issuers and blockchains under all conditions.” This is unlike a bank deposit, which is ultimately backed by access to central bank money.
The BIS believes a stablecoin’s value is determined by the market’s confidence in the issuer’s reserves and redemption mechanism — not by a direct, guaranteed claim on the monetary system, as with a bank deposit.
Stablecoins also fail to act as money is the cash-in-advance model, whereby an issuer mints a new token only once a user deposits the equivalent cash, according to BIS.
This 100% pre-funding requirement means an issuer can’t flexibly expand supply to meet economic needs, the way a commercial bank does by issuing loans that create new deposit money on its balance sheet without waiting for a customer to walk in with cash first.
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