Dollar stablecoins risk behaving like fragile investment funds at the heart of the financial system, the Bank for International Settlements (BIS) has warned, calling for tighter global coordination on regulation before the market grows large enough to rival traditional money.

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BIS General Manager Pablo Hernández de Cos said US dollar‑denominated tokens could have “material consequences” for financial stability and economic policy if their use expands beyond today’s crypto‑trading niche.

US Dollar Stablecoins Resemble ETFs

De Cos drew a direct comparison between the largest dollar stablecoins and exchange‑traded funds (ETFs), pointing to fees and conditions on primary redemptions and repeated deviations from the one‑to‑one dollar peg in secondary markets.

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He warned that this structure creates a specific contagion channel because issuers back their tokens with short‑term government debt and bank deposits, not simple cash balances.

In a period of stress, a rush by holders to cash out could force issuers to dump Treasury bills and pull funding from banks, amplifying volatility in key funding markets rather than insulating them.

At the same time, the BIS chief highlighted financial integrity gaps tied to the use of public, permissionless blockchains and unhosted wallets.

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A significant share of stablecoin activity takes place outside traditional anti‑money‑laundering and counter‑terrorism financing controls, making the tokens attractive for illicit use unless authorities harden checks at the on‑ and off‑ramps linking crypto platforms with the banking system.

De Cos also linked the rise of US dollar‑pegged tokens to the risk of renewed dollarisation pressures in emerging markets, where households already use stablecoins as offshore dollar savings and, in some cases, for domestic payments .

Wider adoption could dilute monetary policy transmission, undermine local currencies and open new channels to evade capital controls, he said.

Central Banks in Europe, the UK and Switzerland

In parallel, major jurisdictions are moving ahead with their own stablecoin regimes, though not yet on fully harmonised terms.

The European Union’s Markets in Crypto‑Assets Regulation (MiCA), upcoming UK rules on fiat‑backed tokens and Switzerland’s new framework for Swiss franc‑linked coins all require full reserve backing, clear redemption rights and direct supervision of issuers, while taking different approaches on scope and implementation.

De Cos argued that without closer global alignment, uneven standards will either fragment markets or push activity into lighter‑touch centres, undercutting more stringent regimes and leaving cross‑border risks unresolved.