BIS warns stablecoins threaten global financial stability

The Bank for International Settlements has issued a stark warning that the rapidly growing stablecoin market poses significant risks to the global monetary system, undermining central bank control and threatening financial stability in vulnerable economies. In its Annual Economic Report published on Sunday, June 28, the Basel-based institution argued that private digital tokens pegged to fiat currencies fail to function as true money and instead resemble exchange-traded funds.

The BIS estimates the total stablecoin market at approximately $316 billion to $320 billion, with over 99% of fiat-backed supply pegged to the U.S. dollar. The report states that stablecoin prices often deviate from their intended peg in secondary markets and that redemptions can be slow or uncertain, lacking the instant, guaranteed exchange at par value that characterizes traditional money. Crucially, the transfers do not settle on central bank balance sheets and cannot ensure exchange at par across different issuers and blockchains under all conditions.

A central concern is what the BIS terms "stablecoin dollarization," where households in emerging economies with weaker domestic currencies increasingly...