​BIS starts to develop a system for monitoring stablecoin reserves

The Bank for International Settlements (BIS), the association of the world’s central banks, is spearheading the development of a monitoring system for stablecoins to ensure issuers maintain adequate reserves.

Named Project Pyxtrial, the program will also investigate tech tools to help regulators form data-based policy frameworks, BIS said on Tuesday as it unveiled its work program for 2023. A stablecoin is a crypto token whose value is linked to the value of other assets such as sovereign currencies, and its ability to keep its peg is linked to strength of its balance sheet.

While central banks worldwide have been heads-down on projects that experiment with digital versions of sovereign currencies (CBDCs), the stablecoin project is a first, and illustrates a growing concern among regulators. While CBDCs are viewed by some central bankers as a more secure alternative to volatile private cryptocurrencies, stablecoins promise the stability of the U.S. dollar or euro, and make up the bedrock of decentralized finance (DeFi) applications – something regulators haven’t yet figured out how to supervise.

“Most central banks lack tools to systemically monitor stablecoins and avoid asset-liability mismatches," the BIS said in the statement. "The project will investigate various technological tools that may help supervisors and regulators to build policy frameworks based on integrated data.”

The program will kick off this year at the BIS’ Innovation Hub in London, BIS said. Revelations from 2021 on the makeup of stablecoin reserves like Tether's USDT, and last year's collapse of algorithmic stablecoin UST have also put regulators on high alert. The BIS, which is made up of 63 central banks, has innovation centers scattered across the globe working on 15 different experiments involving CBDCs, the program showed.

The 2023 program focuses heavily on how central bank digital currencies could improve payments systems. The BIS is also working on monitoring systems for crypto and DeFi with Project Atlas, the announcement said.

Other standard setters like the Basel Committee on Banking Supervision and the Committee on Payments and Market Infrastructures are also looking into crypto and stablecoin supervision.