Global banking regulator flags stability concerns over dollar-pegged stablecoins
Pablo Hernández de Cos, leading the BIS, highlights potential threats to financial stability from dollar-backed stablecoins and calls for enhanced international regulatory cooperation.
Pablo Hernández de Cos, the general manager at the Bank for International Settlements (BIS), issued a call on Monday for enhanced international regulatory coordination regarding stablecoins, cautioning that tokens pegged to the US dollar might trigger "material consequences" affecting economic policy and financial stability should their scale expand to compete with conventional currencies.
During his address at a seminar hosted by the Bank of Japan in Tokyo, he expressed concerns that existing stablecoin frameworks are inadequate for supporting a payment method intended for widespread adoption, despite the advantages they provide in terms of quicker international transfers and compatibility with smart contract technology.
Hernández de Cos highlighted that the most prominent dollar-pegged stablecoins, including USDt (USDT) and USDC (USDC), display qualities more aligned with investment instruments than with cash-equivalent money, referencing the fees and restrictions applied to primary market redemptions as well as instances when their valuations deviate from parity in secondary trading venues.
According to his assessment, these attributes cause the tokens to function similarly to exchange-traded funds (ETFs), yet they simultaneously generate risks of runs and contagion due to issuers maintaining reserves in short-term government securities and commercial bank deposits. During periods of market stress, he cautioned, swift withdrawals from stablecoins might compel the liquidation of these reserves into markets already under pressure or transfer funding strain onto banking institutions.
This cautionary message arrives as regulators around the world engage in discussions about appropriate frameworks for governing rapidly expanding stablecoins and similar tokenized cash-equivalent products.
He further noted that reliance on public, permissionless blockchain networks and unhosted digital wallets results in a substantial portion of transactions occurring beyond traditional Anti-Money Laundering and Counter-Terrorism Financing oversight mechanisms, rendering stablecoins appealing vehicles for criminal activity unless specialized protective measures are established at entry and exit points.
Europe sharpens its stablecoin stance
His remarks arrive at a time when European regulatory authorities are advocating for stricter oversight of stablecoins not denominated in euros and other money-like tokenized products.
At the beginning of this month, Denis Beau, the First Deputy Governor at the Bank of France, called upon the European Union to expand beyond the initial Markets in Crypto Assets Regulation framework by restricting the deployment of stablecoins denominated in currencies other than the euro for routine payment transactions, while strengthening regulations governing the issuance of identical tokens both within and outside the bloc to minimize regulatory arbitrage opportunities during periods of market turbulence.
Simultaneously, the European Central Bank has drawn distinctions between euro-denominated stablecoins and tokenized money market funds, observing that while both engage in liquidity transformation and face exposure to run risks, they function under distinct transparency requirements, liquidity oversight protocols and regulatory frameworks that influence how market stress propagates into funding channels.
Additional major financial jurisdictions are similarly adjusting their regulatory positions. In the United Kingdom, House of Lords members interrogated Coinbase representatives in March regarding concerns that stablecoins might siphon deposits away from commercial banking institutions, precipitate bank runs reminiscent of the Silicon Valley Bank collapse and enable criminal enterprises, while the government works toward completing a specialized regulatory framework for tokens backed by fiat currencies.
In Switzerland, UBS together with several domestic banking institutions initiated a stablecoin pilot program denominated in francs within a regulatory sandbox environment on April 8, seeking to examine blockchain-enabled franc payment systems while ensuring these instruments remain securely embedded within the supervised financial infrastructure.