According to a recent Bank of International Settlements (BIS) working paper, stablecoins and other bearer instruments can pose risks due to the absence of a central bank to ensure singleness of money. Tokenized money can be a bearer instrument, in which the claim on the issuer is transferred without affecting the issuer’s balance sheet. Stablecoins, for example, are considered bearer instruments. The BIS paper compared models of private tokenized money in terms of their singleness as a complement to a central bank digital currency. The authors drew a parallel between bearer instruments and the pre-central bank era of “free banking,” where money could be discounted by its receivers. Instead, tokenized money can be a non-bearer instrument that operates on the commercial banking system model. In this case, the sender’s account is debited and the receiver’s account is credited as the settlement is made in central bank money.
The use of central bank money to settle tokenized money that is a non-bearer instrument guarantees a consistent exchange rate, provided that both public and private forms of tokenized money are available on the same platform. However, singleness between digital money and cash would depend on regulation. Another BIS working paper examined tokenization and found a continuum of challenges and benefits from the process, depending on the nature of the underlying assets.
