Crypto-Asset Service Providers as Financial Intermediaries: Risks and Policy Approaches (BIS)
The Bank for International Settlements (BIS) published a paper that argues that large crypto-asset service providers have evolved into multifunction crypto-asset intermediaries performing bank-like risk transformation and should face commensurate prudential regulation. The paper documents expansion from custody and trading into lending, derivatives, and “earn” programs that transform client assets into credit, liquidity, and maturity risks. Such activities replicate core intermediation functions without capital, liquidity, or supervisory safeguards, raising financial-stability and regulatory-perimeter concerns as links to traditional finance deepen. The authors advocate a combined entity- and activity-based approach, while noting unresolved issues around data gaps, cross-border supervision, and incomplete coverage of key activities. [BIS]
The Stablecoin Stumbling Block (FT)
The Financial Times published a paper in which Daniel Heller argues that existing stablecoin designs are structurally unfit to serve as wholesale settlement assets at scale. He notes that post-crisis standards for financial market infrastructures require settlement in central bank money or assets with equivalent credit quality and intraday liquidity, a bar current stablecoin reserve and redemption models fail to meet. This matters because large-value payments and securities settlement depend on systemically robust “money,” and today’s stablecoins embed maturity, liquidity, and operational risks misaligned with that role. Heller sees potential in tokenized central bank money or purpose-built, narrow-balance-sheet wholesale stablecoins, but leaves open whether central banks will grant reserve access and how global oversight would be structured. [FT]
I’m reposting this paper by Christian Pfister because of its relevance to yesterday’s post regarding the European Central Bank’s (ECB’s) stated digital euro motivations:
For a Political Economy of Central Bank Digital Currency (REP)
In this 2024 Revue d’Economie Politique (REP) article, Christian Pfister applies a positive (political economy) rather than normative framework to retail central bank digital currency (rCBDC). He maps stakeholder incentives across governments, central banks, regulators, incumbent banks, and fintech firms, then tests whether stated policy rationales align with those incentives. He concludes that publicly foregrounded motives, like financial inclusion, payment system safety, monetary sovereignty, and privacy, are analytically weak or largely undeliverable in developed economies. The dominant but largely unstated drivers are fiscal, such as seigniorage maximization through balance-sheet expansion, permanent rollover of sovereign debt held as rCBDC backing, and reduced tax evasion. Setting rCBDC remuneration at zero, officially framed as “do no harm” to bank intermediation, simultaneously serves those seigniorage objectives while suppressing a monetary policy transmission channel that the academic literature broadly endorses. For institutional design, combining legal tender status with fee exemptions advantages rCBDC in ways that raise competitive-neutrality concerns and risk crowding out private innovation. In non-democratic settings, programmable money creates structural conditions for mass surveillance. [REP]
And some backfilling (this one formalizes what most of us have known for about a year…)
Eastern Caribbean Central Bank (ECCB) Suspends DCash 2.0 Project (ECCB)
[February 13, 2026] The Monetary Council of the Eastern Caribbean Central Bank (ECCB) approved the suspension of the DCash 2.0 central bank digital currency (CBDC) project to prioritize the development of the fast payment system (FPS) and participation in the The Caribbean Community (CARICOM) Payments and Settlement System (CAPSS) pilot. [ECCB]
FYI I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
