Bank for International Settlements Issues Stablecoin Warning: A Risky Asset, Not Money…
The Bank for International Settlements (BIS) emphasized in its latest annual report that stablecoins resemble exchange-traded funds (ETFs) rather than a means of payment and pose significant foreign exchange risks to the global financial system.
Marketed as the future of payments in the cryptocurrency world, stablecoins have come under the scrutiny of the BIS, one of the central authorities of traditional finance. According to the institution’s analysis, these assets do not function as “money” as claimed; instead, they are transforming into alternative investment vehicles used by investors to gain access to specific assets. This assessment by the Basel-based institution has sparked a new debate regarding the position of digital assets within the financial system.
The report recalls that the most fundamental characteristic of real money is its unquestioned acceptance as a medium of exchange. However, stablecoin prices exhibit deviations from the $1 value in secondary markets, moving much like premium or discount rates in funds. Furthermore, the operational difficulties in the processes of converting these assets into cash and the fact that they are not backed by central bank balance sheets pull them away from being a safe haven. Unlike commercial banks, which can create money supply flexibly by lending, stablecoin issuers can only mint new tokens when a user deposits cash.
Stablecoins and Global Foreign Exchange Risk
The BIS points out that the use of stablecoins, particularly in emerging economies, weakens local currencies. In regions experiencing high inflation, users turning to these dollar-pegged assets accelerates the process of “digital dollarization.” This situation makes capital controls more difficult for countries while also driving up transaction costs in traditional foreign exchange markets.
The borderless nature of crypto assets causes the regulations applied to traditional bank deposits to remain ineffective in this area. The BIS report warns that the structure of these assets, which relies on market confidence, could further amplify risks during periods of economic instability. Consequently, it is stated that with their current structures, stablecoins remain risky investment instruments rather than becoming a part of the global monetary system.