The Bank for International Settlements (BIS) used its latest Annual Economic Report to deliver a sharp warning about the roughly $316 billion stablecoin market. While stablecoins are typically pegged to fiat currencies, the BIS argued that they still lack the institutional features required to serve as safe and scalable money for the broader financial system. In the institution’s view, they should not become the foundation of the future monetary order.
A central concern in the report is the structural fragility surrounding reserve asset management. The BIS said that if households and businesses increasingly shift funds away from commercial bank deposits into privately issued digital tokens, banks could see their funding bases weaken. That, in turn, could reduce credit availability to the real economy and introduce broader financial stability risks.
Stablecoin dollarization seen as a policy threat
The report placed special emphasis on what it called “stablecoin dollarization,” or the growing use of dollar-backed stablecoins in economies with weaker domestic currencies. According to the BIS, this trend may erode monetary sovereignty, reduce the effectiveness of local monetary policy, weaken bank intermediation, and amplify volatility linked to cross-border capital flows. The risks are seen as especially acute for developing markets.
The BIS also suggested that current regulatory approaches may not be sufficient if private digital currencies continue to expand. Policymakers, it said, will need to strike a more careful balance between payment innovation and the preservation of monetary and financial stability.
Public blockchains face deeper criticism
Beyond stablecoins, the BIS challenged the idea that public permissionless blockchains such as Bitcoin and Ethereum could serve as the backbone of the monetary system. It argued that networks built on distributed validation and lacking centralized governance struggle to meet the standards required of systemically important financial infrastructure, particularly in scalability, legal accountability, and settlement finality.
The report added that decentralized consensus models are economically constrained because validators are rewarded through transaction fees. As network usage rises, costs, congestion, and confirmation delays can also increase. The BIS framed these as structural features rather than temporary limitations. It also said public blockchains lack clear accountability mechanisms for dispute resolution, system integrity, and regulatory enforcement.
BIS backs a regulated unified ledger model
At the same time, the BIS did not reject tokenization altogether. Instead, it proposed a “unified ledger” framework combining tokenized central bank money, tokenized commercial bank deposits, and tokenized financial assets on programmable platforms operating within regulated legal and institutional structures. According to the BIS, this model could preserve the efficiency gains of tokenization, including faster settlement and programmable transactions, without sacrificing monetary stability, financial soundness, or public trust.
The report ultimately shows that as stablecoins gain scale globally, the main debate is shifting from technological novelty to a more fundamental question: whether new forms of digital money can expand without weakening sovereignty, disrupting credit intermediation, or fragmenting the monetary system itself.