across the economy and advocated tokenized deposits as a more promising alternative.

Pablo Hernandez de Cos spoke at an economic policy symposium in Jackson Hole, Wyoming, organized by the US Federal Reserve. He argued that both instruments can coexist: tokenized deposits should support most everyday payments, while stablecoins should perform more specialized functions.

Stablecoins are cryptoassets designed to maintain a stable value. Their growing adoption has raised regulatory concerns regarding financial stability and money laundering, particularly outside the United States.

US Treasury Secretary Scott Bessent supported stablecoins, calling them a digital revolution that could strengthen the dollar's status as the world's leading reserve currency and generate demand for trillions of dollars in Treasury bonds.

De Causs, a candidate to succeed Christine Lagarde as President of the European Central Bank next year, identified a number of concerns about stablecoins.

He acknowledged that they could reduce the cost of government borrowing, as Bessent had suggested. However, de Causs warned that funding costs for banks could rise as funds flow out from lenders, ultimately forcing ordinary borrowers to pay higher rates.

Furthermore, stablecoins violate the principle of "oneness" of money: customers cannot switch between products without incurring additional costs for purchases and sales, he noted.

Stablecoin platforms lack genuine interoperability and pose money laundering risks, as it is extremely difficult to consistently enforce controls, de Causs added.

"The growing adoption of dollar-pegged stablecoins has raised concerns in a number of jurisdictions regarding monetary sovereignty and potential digital dollarization," he stated.

If borrowers outside the US significantly switch to dollar-denominated stablecoins, this could undermine monetary sovereignty, reduce the effectiveness of domestic monetary policy, and further tie local conditions to external policy decisions, de Caus warned.

"Tokenized deposits offer a more direct route to leveraging the benefits of tokenization while preserving the fundamentals of the monetary system," de Caus emphasized.

However, tokenized deposits still need to address issues of compatibility, governance, and legal hurdles, including those related to settlements, he added.