BASEL, Switzerland— Dollar-backed stablecoins could become a source of broader financial instability if they continue to grow without tighter, coordinated oversight, with the Bank for International Settlements warning the tokens increasingly resemble fragile investment vehicles rather than money and could create stress for banks, funding markets and monetary policy, stated BIS General Manager Pablo Hernández de Cos.
In a speech in Tokyo, de Cos said wider use of dollar stablecoins could have “material consequences” if the market expands beyond its current crypto-trading niche, arguing the largest tokens behave more like ETFs than true digital cash because of redemption frictions, fees and repeated deviations from their one-to-one dollar pegs in secondary markets. He warned that because issuers typically back tokens with short-term government debt and bank deposits, a rush to redeem during market stress could force sales of Treasury bills and withdrawals from banks, amplifying volatility in key funding markets, reported Finance Magnates.
De Cos also flagged anti-money-laundering and sanctions concerns tied to public blockchains and unhosted wallets, saying significant stablecoin activity still occurs outside traditional financial-crime controls. He further warned that heavier use of dollar-pegged tokens in emerging markets could intensify “dollarisation” pressures, weaken local currencies and complicate monetary policy transmission—concerns that could resonate with U.S. financial institutions as Treasury and other regulators continue implementing the GENIUS Act stablecoin framework, Finance Magnates said.
The BIS chief urged closer international alignment as the European Union, U.K. and Switzerland move ahead with their own stablecoin regimes, warning that uneven standards could either fragment markets or drive activity into lighter-touch jurisdictions.
