Dollar stablecoins risk behaving like fragile investment
funds at the heart of the financial system, the Bank for International
Settlements (BIS) has warned, calling for tighter global coordination on
regulation before the market grows large enough to rival traditional money.
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BIS General Manager Pablo Hernández de Cos said US dollar‑denominated
tokens could have “material consequences” for financial stability and economic policy if their use
expands beyond today’s crypto‑trading
niche.
US Dollar Stablecoins Resemble ETFs
De Cos drew a direct comparison between the largest dollar
stablecoins and exchange‑traded funds (ETFs), pointing to
fees and conditions on primary redemptions and repeated deviations from the one‑to‑one
dollar peg in secondary markets.
He warned that this structure creates a specific contagion
channel because issuers back their tokens with short‑term
government debt and bank deposits, not simple cash balances.
In a period of stress, a rush by holders to cash out could
force issuers to dump Treasury bills and pull funding from banks, amplifying
volatility in key funding markets rather than insulating them.
At the same time, the BIS chief highlighted financial
integrity gaps tied to the use of public, permissionless blockchains and
unhosted wallets.
Read more: Hong Kong Opens Stablecoin Market with First Approvals for HSBC and Anchorpoint
A significant share of stablecoin activity takes place
outside traditional anti‑money‑laundering
and counter‑terrorism financing controls, making the tokens
attractive for illicit use unless authorities harden checks at the on‑
and off‑ramps
linking crypto platforms with the banking system.
De Cos also linked the rise of US dollar‑pegged
tokens to the risk of renewed dollarisation pressures in emerging markets,
where households already use stablecoins as offshore dollar savings and, in
some cases, for domestic payments.
Wider adoption could dilute monetary policy transmission,
undermine local currencies and open new channels to evade capital controls, he
said.
Central Banks in Europe, the UK and Switzerland
In parallel, major jurisdictions are moving ahead with their
own stablecoin regimes, though not yet on fully harmonised terms.
The European Union’s Markets in Crypto‑Assets Regulation (MiCA), upcoming UK rules on fiat‑backed tokens and Switzerland’s new framework for Swiss franc‑linked coins all require full
reserve backing, clear redemption rights and direct supervision of issuers,
while taking different approaches on scope and implementation.
De Cos argued that without closer global alignment, uneven
standards will either fragment markets or push activity into lighter‑touch
centres, undercutting more stringent regimes and leaving cross‑border
risks unresolved.
This article was written by Jared Kirui at www.financemagnates.com.
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