New BIS report raises concerns with stablecoins

The Bank for International Settlements said that while tokenization can enhance efficiency and open new possibilities in cross-border payments and securities markets, stablecoins pose a risk to financial stability and monetary sovereignty without regulation.

Details: In a special chapter of BIS's Annual Economic Report 2025, the global institution said:

• Stablecoins perform poorly when assessed against three tests for serving as the mainstay of the monetary system.

• The circulation of stablecoins without issuer oversight raises concerns about their use for financial crime.

• Stablecoins fare poorly on singleness and elasticity, lacking the settlement function provided by central banks, trading at varying exchange rates, and imposing a cash-in-advance constraint.

• There is an inherent tension between stablecoins’ promise to always deliver par convertibility (i.e., be truly stable) and the need for a profitable business model that involves liquidity or credit risk.

• If stablecoins continue to grow, they could pose financial stability risks, including the tail risk of fire sales of safe assets.

• Bank-issued stablecoins may introduce new risks, depending on their legal and governance arrangements.

Congressional Debate: As Congress continues to consider legislation to establish a regulatory framework for currently unregulated stablecoins following last week’s Senate passage of the GENIUS Act, ICBA this week urged House Financial Services Committee Chairman French Hill (R-Ark.) to ensure any measure considered by the House includes guardrails against negative economic consequences that would result from community bank disintermediation.