The global financial system must overhaul its rulebook to prepare for a future shaped by digital tokens, as the rise of stablecoins poses new challenges to the world’s payment, clearing and settlement infrastructure, according to the Bank for International Settlements (BIS), often referred to as the “central bank of central banks.”
Stablecoins are digital, cryptographic tokens whose values are pegged to those of other assets, like the US dollar. This feature differentiates stablecoins from bitcoin and other crypto assets whose values fluctuate with supply and demand and makes them a more popular alternative as a medium of exchange and a store of value, according to Brookings Institution.
Stablecoins are stored and exchanged on decentralised networks (known as blockchains) that serve as ledgers of all transactions. No single intermediary is required for two parties to transact in crypto assets. Instead, participants in a network receive small transaction fees for the computation expended to verify the validity of transactions, and the consensus of these observers allows transactions to proceed. Mutual trust in the execution of transactions is assured by the structure of blockchains themselves, which are publicly accessible for viewing and participation.
The BIS has warned that Stablecoins could complicate anti-money laundering (AML) measures and banks’ obligations to know their customers, particularly due to their cross-border, pseudonymous nature.
“The rules of the monetary system are changing, and stablecoins are right at the front line of the policy debate,” said Shin Hyun-Song, BIS economic adviser and head of its monetary and economic department, in an interview with scmp.com. “A stablecoin is a borderless instrument, often the entry point into the crypto ecosystem and other decentralised finance platforms — but it also presents many new kinds of challenges.”
These challenges have been amplified by the recent surge in investor enthusiasm surrounding Circle Internet Group, a stablecoin issuer whose stock price has jumped sevenfold since its June 5 listing in New York. The Trump administration’s support for privately issued digital currencies has pushed bitcoin past the $1,20,000 mark for the first time, fuelling further market excitement.
The BIS has long warned of the risks posed by stablecoins. The Basel-based institution has laid out a vision for a unified ledger that uses blockchain and tokens to integrate money and assets into a shared, global infrastructure.
Stablecoins are one form of tokenisation, alongside tokenised deposits and central bank digital currencies — the latter being the BIS’s preferred approach in its innovation initiatives.
Their widespread use, especially when pegged to foreign currencies, could erode a country’s monetary sovereignty, the BIS cautioned. Heavy holdings of short-term government debt could also disrupt money markets, potentially affecting interest rates and financial stability in the event of large inflows or outflows.
These concerns are especially relevant amid ongoing discussions about de-dollarisation and the sustainability of the US dollar’s status as the world’s reserve and safe-haven currency.
The US dollar still underpins the vast majority of the world’s $255 billion in stablecoins, with Tether’s USDT and Circle’s USDC together accounting for around 90 percent of market capitalisation — double their share from two years ago.
The BIS described stablecoins as “unsound money”, arguing they fall short of the three pillars of a robust monetary system: singleness, elasticity, and integrity.
‘Singleness’ refers to the principle that all forms of money should be interchangeable at par. ‘Integrity’ implies that the system must be resilient against criminal misuse. Stablecoins lack elasticity because they must be fully pre-funded — a model ill-suited to supply chain finance, where large liquidity volumes are required without being locked up.
Despite these shortcomings, BIS acknowledges that stablecoins may still have a role in future monetary frameworks, as one expression of tokenisation — the process of digitally representing real-world assets.
Shin said this transformation held “great promise”, offering improvements in current systems and enabling new economic structures.
“It’s quite likely that stablecoins will be here to stay, because crypto is not going away any time soon,” he said. “For lower-value payments — up to half a million US dollars — stablecoins may still play a subsidiary role, if properly regulated.”