The Challenges of Stablecoins as Reliable Means of Exchange

According to economists at the Bank for International Settlements (BIS), stablecoins are not meeting their intended purpose of being a reliable means of exchange. In order for stablecoins to be effective in facilitating transactions, they need to maintain a stable value throughout the day. However, BIS researchers have found that many stablecoins are failing to do so.

Stablecoins are digital currencies that are designed to have a stable value by being pegged to a reserve asset, such as a fiat currency or a commodity. The idea behind stablecoins is to provide the benefits of cryptocurrencies, such as fast and low-cost transactions, while minimizing the volatility that is often associated with traditional cryptocurrencies like Bitcoin.

However, BIS researchers argue that stablecoins are falling short of their promise. They have found that many stablecoins experience significant fluctuations in value, making them unreliable as a medium of exchange. This volatility can be attributed to various factors, such as the lack of transparency in the underlying reserve assets, regulatory uncertainties, and market manipulation.

The inability of stablecoins to maintain a stable value throughout the day undermines their usefulness as a means of exchange. If the value of a stablecoin can fluctuate significantly within a short period of time, it becomes difficult for users to rely on it for everyday transactions. This limits the adoption and acceptance of stablecoins in the wider economy.

In conclusion, BIS researchers have highlighted the shortcomings of stablecoins in fulfilling their intended purpose. While stablecoins offer the potential for fast and low-cost transactions, their inability to maintain a stable value undermines their effectiveness as a means of exchange. To address these issues, further research and regulatory measures are needed to ensure the stability and reliability of stablecoins.