The Bank for International Settlements (BIS) has warned that dollar-denominated stablecoins risk behaving like fragile investment funds at the heart of the financial system, calling for tighter global coordination on regulation before the market grows large enough to rival traditional money.
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Pablo Hernandez de Cos, Director General of the Bank for International Settlements, said US dollar-denominated tokens could have “material consequences” for financial stability and economic policy if their use expands beyond the realm of cryptocurrency trading today.
USD stablecoins are similar to ETFs
De Cos made a direct comparison between the largest dollar-dollar stablecoins and exchange-traded funds (ETFs), noting fees and conditions on initial redemptions and frequent deviations from the dollar-to-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 bondholders to withdraw cash may force issuers to unload Treasuries and withdraw funding from banks, amplifying rather than isolating volatility in key funding markets.
Meanwhile, the head of the Bank for International Settlements highlighted financial integrity gaps associated with the use of permissionless public blockchains and unhosted wallets.
Read more: Hong Kong opens stablecoin market with first approvals for HSBC and Anchorpoint
A large share of Stable coin The activity occurs outside traditional AML/CFT controls, making tokens attractive for illicit use unless authorities tighten inspections on internal and external routes connecting cryptocurrency platforms to the banking system.
De Cos also linked the rise in currencies linked to the US dollar to the risk of renewed dollarization pressures in emerging markets, where households already use stablecoins as dollar savings abroad and, in some cases, for domestic purposes. Payments.
Wider adoption could ease monetary policy transmission, undermine local currencies and open new channels for evading capital controls, he said.
Central banks in Europe, the United Kingdom and Switzerland
In parallel, major jurisdictions are moving forward with the creation of their own stablecoin regimes, although fully harmonized terms have not yet been reached.
European Union Markets in regulating crypto assets (MiCA), upcoming UK rules on fiat-backed tokens and a new Swiss framework for coins linked to the Swiss franc, all require full backing, clear redemption rights and direct oversight of issuers, with different approaches to scope and implementation.
De Cos argues that in the absence of closer global harmonization, asymmetric standards will either fragment markets or push activity into lighter positions, undermining stricter regulations and leaving cross-border risks unresolved.
This article was written by Jared Kirroy at www.financemagnates.com.
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