Stablecoins or Tokenized Deposits? Institutions May End Up Using Both
The debate over digital money is becoming more practical.
At the Jackson Hole Economic Symposium on August 28, BIS General Manager Pablo Hernández de Cos argued that stablecoins are not a credible foundation for payments at scale, pointing to concerns around interoperability, financial stability and monetary sovereignty. He highlighted tokenized commercial bank deposits as a more promising path.
At the same time, banks and central banks are actively exploring tokenized cash, deposits and blockchain-based settlement.
The question is no longer whether money will move onto programmable infrastructure.
It is what form that money will take.
Different instruments, different strengths
Stablecoins and tokenized deposits can both represent familiar currencies digitally, but they are not the same.
Stablecoins are separate instruments issued against reserve assets.
Tokenized deposits remain liabilities of commercial banks, represented on programmable infrastructure.
For regulated institutions, tokenized deposits may fit more naturally into existing banking frameworks.
Stablecoins, however, already have something tokenized deposits largely do not: scale, market liquidity and established use across digital-asset markets.
That makes a simple winner-takes-all outcome unlikely.
Institutions will choose based on utility
For treasury desks and trading firms, the decision will be practical.
They will care about:
liquidity;
settlement speed;
counterparty exposure;
operating hours;
regulatory treatment;
convertibility into other currencies.
At institutional size, those differences matter.
A digital asset can settle in seconds and still be inefficient if converting it into another form of money is expensive or operationally difficult.
Coexistence creates a new market problem
Stablecoins, tokenized deposits and traditional fiat are likely to coexist.
That means institutions may increasingly need to move between them.
A company receiving a dollar stablecoin may need euros.
A bank holding a tokenized dollar deposit may need to settle with a counterparty using another digital asset.
A business in the Gulf may receive digital dollars but ultimately need local currency in a bank account.
The transfer may be instant.
The conversion is not.
A market still has to exist between the two forms of money.
Liquidity may matter more than the winner
Much of the tokenization debate focuses on technical interoperability: whether different networks and ledgers can connect.
But financial interoperability requires something more.
It requires liquidity.
Two systems can be technically connected while remaining economically disconnected if institutions cannot efficiently exchange the assets that exist on them.
Stablecoins and tokenized deposits may therefore be less important as competing technologies than as parts of a broader financial network.
The next stage of digital settlement may not be defined by which instrument wins.
It may be defined by how easily institutions can move between them.
