BIS warned the $316 billion stablecoin market could fragment the global monetary system and weaken monetary sovereignty

The Bank for International Settlements (BIS) has warned that the rapid growth of the stablecoin market could fragment the global monetary system and undermine countries’ control over their own monetary policy. The Basel-based institution urged central banks and the financial sector to accelerate the development of tokenized forms of central bank money and commercial bank money as a safer alternative.

Cautious stance on a $316 billion market

In its Annual Economic Report published on Sunday, BIS delivered a stark assessment of the roughly $316 billion stablecoin market. The institution stated these digital assets, which are pegged to fiat currencies, lack the institutional qualities needed to function as safe and stable money on a large scale. BIS is recognized internationally for supporting cooperation among central banks and establishing standards for the global financial system.

The report highlighted structural vulnerabilities in the management of reserve assets. It warned that a significant shift from commercial bank deposits to private digital tokens could shrink banks’ funding bases and place downward pressure on lending to the real economy.

BIS also suggested that the current regulatory approach may fall short. The organization argued that if private digital currencies continue to grow, a more careful balance will have to be struck between modernizing payment systems and preserving monetary stability.

Stablecoin dollarization gains momentum

The report called particular attention to the trend of “stablecoin dollarization.” This term refers to the increasing use of dollar-based stablecoins in economies where the local currency is weaker. BIS noted that this trend can erode monetary sovereignty, diminish the effectiveness of domestic monetary policy, weaken banking intermediation, and heighten the volatility stemming from cross-border capital flows, especially in developing markets.

Mini glossary: Dollarization refers to the widespread use of foreign currency in place of the local currency. Stablecoin dollarization describes the same trend, but driven by digital dollar tokens.

BIS ramps up criticism of public blockchains

BIS also issued strong objections to the idea of public, permissionless blockchains like Bitcoin and Ethereum forming the backbone of the monetary system. The report argued that networks without centralized governance, which rely on distributed validation, struggle to meet the requirements of systemically critical financial infrastructures in areas such as scalability, legal accountability, and definitive settlement of transactions.

The organization analyzed the economics of decentralized consensus in these networks. It noted that as validators are incentivized through transaction fees, increasing usage leads to rising costs, congestion, and longer confirmation times—features that BIS views as structural rather than temporary issues. The BIS asserted this undermines the efficiency and network effects needed for a unified monetary system.

The report further noted that public blockchains lack the clear governance and accountability frameworks required for institutional finance. The absence of an entity responsible for safeguarding system integrity, resolving disputes, or enforcing financial regulations presents a major obstacle to large-scale, regulated financial operations.

BIS advocates unified ledger solution

Rather than rejecting tokenization, BIS proposed a “unified ledger” architecture that would combine tokenized central bank money, tokenized commercial bank deposits, and tokenized financial assets on programmable platforms operating within regulated legal and institutional frameworks.

According to BIS, this model preserves the advantages of tokenization—such as programmable transactions and faster settlement—while maintaining the institutional foundations of the existing monetary system. In this way, financial markets could become more efficient without risking monetary stability, financial soundness, or public trust.

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