The Bank for International Settlements (BIS) has issued its most direct warning yet over the systemic risks posed by stablecoins, urging central banks to expedite efforts to tokenise their currencies and maintain monetary sovereignty.
In a pre-release chapter of its annual report, the BIS criticised stablecoins, digital tokens pegged to fiat currencies, as falling short of fundamental monetary principles.
It warned that their proliferation could destabilise financial systems, particularly in emerging markets, and erode central banks’ ability to control monetary policy.
Stablecoins, which are largely backed by assets such as US Treasuries, have ballooned in popularity, with dollar-linked variants comprising 99% of the sector’s $260bn market.
The BIS raised concerns over their volatility, lack of transparency, and the absence of a trusted central settlement mechanism, likening their behaviour to 19th-century private banknotes.
Hyun Song Shin, the BIS’s chief economist, said the fragmentation they introduce undermines the fungibility of money. Tether, the largest player in the market, recently exited the EU, highlighting regulatory frictions.
In response, the BIS is promoting a unified digital ledger model that integrates central bank reserves, commercial deposits and sovereign bonds.
The aim is to preserve fiat’s dominance while enhancing global financial infrastructure with programmability, resilience and real-time settlement.