BIS Warns Stablecoins Fall Short of ‘Money’ as Systemic Risks Emerge

The Bank for International Settlements (BIS) has delivered one of its most detailed and skeptical assessments of stablecoins to date, arguing that today’s fiat-pegged tokens may showcase elements of tokenization but still fall short of what qualifies as ‘money’—and could introduce new macro-financial risks if they scale. In its 2026 Annual Economic Report, the BIS frames the bigger opportunity elsewhere: bringing tokenization into a ‘two-tier’ monetary system anchored by central bank money rather than relying on private bearer-like tokens as an endpoint.

The report’s Chapter 3 is pointedly titled “Anchoring trust in money: innovation beyond stablecoins”, signaling the institution’s view that stablecoins are not the center of gravity for the next wave of monetary innovation. The BIS’s position is not anti-technology; instead, it draws a hard line between technical progress and the institutional foundations that make modern money broadly acceptable “no questions asked.”

Before turning to stablecoins, the BIS restates what it considers the core attributes of an effective monetary system. First is a shared social convention around a common ‘unit of account’—the idea that prices, contracts, and balance sheets can be expressed in the same denomination. Second is the ‘singleness of money’: claims denominated in that unit should trade at par and settle with finality in central bank money, regardless of who issues them and regardless of stress conditions. Put simply, “one dollar should always be one dollar.”

These properties, the BIS emphasizes, are not created by software. They are the product of policy and institutional design: credible commitments to price stability, robust legal frameworks, supervised intermediaries, and system-wide ‘elasticity’—the capacity for central banks to supply intraday liquidity and act as lender of last resort during spikes in payment demand. Interoperability between payment platforms and financial ‘integrity’ measures such as AML/CFT controls complete the trust architecture.

Against that yardstick, the BIS judges current stablecoins as structurally limited. It defines stablecoins as privately issued tokens on public, permissionless blockchains that offer money-like functionality. But the market, it notes, is overwhelmingly tied to the U.S. dollar: 99.4% of fiat-linked stablecoins are pegged to USD, effectively free-riding on the dominant global unit of account.

As of late May 2026, the report puts stablecoin market capitalization at roughly $320 billion. The sector remained relatively resilient even during a sharp crypto downturn from late 2025 into early 2026, but it still pales beside the multi-trillion-dollar scale of bank deposits. Stablecoin activity can appear enormous in gross terms—estimated at $28 trillion in 2025—but the BIS cautions that raw on-chain totals can overstate economic usage due to repeated transfers between wallets controlled by the same entity. Adjusted figures cited from Visa place annual transaction volume closer to $390 billion, less than 1% of overall payment activity by broad comparison.

Usage also remains concentrated. The BIS finds stablecoins are still primarily used for crypto trading and settlement within digital asset markets, with a secondary role in some emerging and developing economies as an offshore store of value. Reserve portfolios of major issuers have converged on low-risk, short-duration instruments—cash and cash equivalents, short-term U.S. Treasuries, and reverse repos—reflecting regulatory and market expectations around liquidity.

The central critique, however, is about ‘moneyness’. Stablecoin transfers do not settle directly—or even indirectly in a consistent way—on central bank balance sheets, and par convertibility is not assured across issuers and blockchains in all conditions. Prices in secondary markets can deviate from the peg, even if usually modestly, and redemption frictions are common. In one of its sharper formulations, the BIS argues that today’s stablecoins are “closer to shares in an ETF than they are to a payment instrument.”

The report also flags persistent issues of financial integrity. Pseudonymity and the widespread use of unhosted wallets can weaken KYC and AML/CFT compliance, while mixers and cross-chain bridges can obscure transaction trails. Although issuers can and do exercise technical controls—such as freezing balances at specific addresses—the BIS does not view these tools as a substitute for scalable, day-to-day compliance infrastructure in mass-market payments.

Fragmentation is another structural fault line. The same branded stablecoin on different networks—such as USDT on Ethereum and USDT on Solana—exists on separate ledgers that do not natively communicate, leaving bridges to fill the gap. Those bridges have repeatedly been a source of security vulnerabilities and operational costs. For the BIS, that architecture risks undermining the ‘singleness’ principle by making “same value everywhere” harder to guarantee when the system is stressed.

Looking ahead, the BIS models what could happen if stablecoins become large enough to matter for the core financial system—an explicit response to industry forecasts that the market could reach $2 trillion to $4 trillion by 2030. It evaluates three scenarios based on whether issuers hold reserves as bank deposits, short-term government bills, or central bank reserves, using a simplified example of households purchasing stablecoins with $100 of bank deposits.

In a bank-deposit reserve scenario, retail deposits effectively migrate into wholesale deposits at the issuing entity. While the banking system’s asset base might not shrink mechanically, the BIS warns that higher run-off rates for wholesale funding could worsen key liquidity metrics, including the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

In a Treasury-bill reserve scenario, large-scale stablecoin issuance could create sizable demand for short-term government debt, potentially lowering governments’ borrowing costs. But the BIS cautions this could flip in a rush of redemptions: forced selling of bills could transmit stress into short-term funding markets and generate asymmetric shocks along the yield curve.

In a central bank reserve scenario, the risks shift toward rapid liquidity migration between banks and stablecoin issuers. If users treat stablecoins as close substitutes for central bank money, the BIS argues, stress periods could trigger abrupt reallocations that complicate crisis liquidity management and amplify runs.

Using a quantitative model calibrated with U.S. data, the BIS’s overall result is “limited but negative” on medium-term output across scenarios where stablecoin market capitalization rises to $1 trillion, $2 trillion, or $3 trillion. A ‘fiscal space’ channel—where stablecoin demand for Treasuries reduces government financing costs—can support activity, but the BIS finds it is more than offset by a contraction in bank lending driven by higher funding costs. The report notes that the direction could change under different conditions, such as higher public debt ratios or greater foreign demand, underscoring sensitivity to macro structure.

For policymakers outside the United States, the BIS highlights a distinct concern: ‘stablecoin dollarisation’. The report argues that inflows of foreign-currency stablecoins—especially USD-pegged tokens—can replicate or accelerate traditional deposit dollarization in emerging economies by bypassing capital controls and weakening FX regulations. Once entrenched, the BIS warns, such usage can be difficult to reverse.

While South Korea is not typically grouped with high-inflation emerging markets, the BIS framework poses direct questions for jurisdictions weighing local-currency stablecoin design. The report’s logic is that as dollar stablecoins expand from trading rails into everyday payments and savings behavior, the domestic currency’s role as a unit of account can erode, reducing monetary policy autonomy. At the same time, the BIS argues that strong macro fundamentals and efficient domestic payment systems can reinforce monetary sovereignty—suggesting the policy response is broader than simply authorizing or banning issuance.

Most notably, the BIS proposes that the “real blueprint” for tokenization is not stablecoins but a ‘unified ledger’ approach: placing tokenized central bank reserves, tokenized commercial bank deposits, appropriately designed and supervised private money, and tokenized real-world or financial assets onto a single platform—or multiple interoperable platforms. The goal is to integrate messaging, reconciliation, and transfer in a manner that enables ‘atomic settlement’, reducing settlement risk and operational friction while keeping central bank money as the anchor for par convertibility and system trust.

The BIS points to Project Agorá as a practical demonstration. The initiative involves eight central banks and more than 40 regulated financial institutions, and explores an architecture where a common ledger for tokenized commercial bank deposits works alongside jurisdiction-specific ledgers for tokenized central bank reserves. By locking balances after validation, the system aims to execute cross-currency settlement on an “all-or-nothing” basis—an operational design intended to preserve finality while improving efficiency. The Bank of Korea is among the participating central banks, positioning South Korea as an active contributor to the BIS’s next-generation monetary infrastructure experiments.

On regulation, the BIS observes that frameworks across major jurisdictions are beginning to converge, comparing approaches in the European Union (MiCA), Hong Kong, Japan, Singapore, the United Kingdom, and the United States’ GENIUS Act. Among the shared pillars the BIS identifies are: mandatory redemption at par, full reserve backing, and a prohibition on paying interest to holders. Differences remain over redemption timelines and fees, eligible reserve asset composition, access to central bank accounts, and the strictness of capital requirements.

The BIS notes that the GENIUS Act emphasizes 1:1 reserve backing and priority treatment for holders in insolvency, while the UK is considering rules that would require systemically important pound-denominated stablecoins to hold at least 40% of reserves as non-interest-bearing deposits at the Bank of England. Still, the BIS cautions that regulation alone has not been sufficient to ignite large-scale non-dollar stablecoin markets: despite clearer rules in some jurisdictions, issuance and adoption outside USD pegs remain minimal.

Ultimately, the BIS frames its message as a defense of monetary trust rather than a rejection of innovation. Tokenization and distributed ledger technology can improve payments, clearing, settlement, and broader market infrastructure, the report acknowledges. But they cannot, on their own, replicate interoperability, liquidity backstops, integrity controls, or the institutional credibility that makes money universally acceptable. In the BIS’s view, the future of tokenization is less about private tokens that test par in the marketplace, and more about building programmable financial assets and liabilities atop trusted balance sheets—anchored by central bank money within a resilient ‘two-tier’ system.