BIS warns of risks posed by stablecoins

The Bank for International Settlements (BIS), often referred to as the central bank for central banks, has warned that the rapid expansion of stablecoins could fragment the global financial system and reduce governments' control over monetary policy. In its annual report published on June 28, the institution argued that privately issued digital tokens do not meet the standards required of safe and reliable money.

According to the BIS, the stablecoin market, currently valued at around $316 billion, faces significant challenges related to the management of reserve assets. The report also warns that a shift of funds from traditional bank deposits into private digital tokens could reduce banks' funding capacity and limit the availability of credit across the economy.

The report's authors believe existing regulations may not be sufficient if the stablecoin market continues to expand at its current pace. Instead of building the future payments system around privately issued tokens, the BIS proposes a model based on tokenized bank deposits and tokenized central bank money operating within a regulated financial environment.

The report also highlights the growing trend of "stablecoin dollarization." Increased use of U.S. dollar-backed stablecoins in countries with weaker national currencies could undermine domestic monetary policy, reduce the role of local banks, and make economies—particularly emerging markets—more vulnerable to fluctuations in global capital flows.

The BIS also takes a critical view of public blockchain networks such as Bitcoin and Ethereum. According to the report, their decentralized architecture makes it difficult to achieve the scalability, legal accountability, and settlement finality required for financial infrastructure of systemic importance.

The report further argues that rewarding blockchain validators through transaction fees results in higher costs, network congestion, and longer confirmation times as user activity increases. Another concern is the absence of a clearly defined entity responsible for network operations, dispute resolution, and regulatory compliance.

Despite these concerns, the BIS does not reject tokenization itself. Instead, it advocates for a unified ledger that combines tokenized central bank money, tokenized commercial bank deposits, and financial assets. The report concludes that such a framework would preserve the benefits of tokenization—including programmable transactions and faster settlements—while maintaining financial stability and public trust in money.