BIS warns stablecoins threaten monetary stability

• The Bank for International Settlements warned that the rapid growth of stablecoins could fragment the global monetary system and weaken monetary sovereignty.
• The organisation said tokenised central bank and commercial bank money offer a more resilient foundation for future digital payments than private stablecoins.
• The report also questioned whether public blockchains can meet the governance, scalability and settlement requirements of regulated financial markets.

The Bank for International Settlements (BIS) has warned that the expansion of the approximately US$316 billion stablecoin market could fragment the global monetary system and reduce the effectiveness of national monetary policy.

In its Annual Economic Report, the BIS said stablecoins lack the institutional characteristics needed to function as safe and reliable money at scale and warned that a shift from commercial bank deposits into private digital tokens could reduce bank funding and constrain lending.

The BIS said tokenised commercial bank deposits, combined with tokenised central bank money operating on regulated platforms, provide a stronger framework for modernising payments while preserving monetary and financial stability.

The report also highlighted the risks of "stablecoin dollarisation", arguing that widespread use of US dollar-denominated stablecoins in countries with weaker domestic currencies could weaken monetary sovereignty, reduce bank intermediation and increase exposure to cross-border capital flows.

The BIS also questioned the suitability of public permissionless blockchains such as Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH) for systemically important financial infrastructure, citing governance, scalability and settlement challenges.

According to the report, transaction fees, network congestion and decentralised governance create structural limitations that may reduce the efficiency required for large-scale regulated financial markets.

Rather than rejecting tokenisation, the BIS proposed a unified ledger model combining tokenised central bank money, tokenised commercial bank deposits and tokenised financial assets within regulated legal and institutional frameworks.

At the time of reporting, Bitcoin price was $59,448.18.