BIS Report Warns Stablecoins Mimic ETFs, Threaten FX Stability

The Bank for International Settlements released its annual economic report Monday. The document runs more than 100 pages and covers a wide range of financial stability topics. One section focuses on stablecoins, the digital tokens designed to hold a fixed value, usually $1.

The BIS delivered a blunt verdict. Stablecoins are not money. They function more like money market ETFs, the report said. Their price deviates from the dollar peg frequently, sometimes sharply. Redemptions are not contractually guaranteed. That makes them vulnerable to runs.

The report examined the two largest stablecoins – Tether (USDT) and USD Coin (USDC) – as examples. Both hold portfolios of Treasuries, cash, and other assets. Both can face liquidity mismatches if holders rush to exit. The BIS referenced the TerraUSD collapse as a case study. That event wiped out $40 billion in value.

The expansion of dollar-denominated stablecoins carries consequences beyond crypto. The report warned that these tokens threaten monetary sovereignty, especially in emerging economies. When citizens can easily hold a dollar-backed stablecoin, the central bank loses its grip on the money supply and exchange rate. High inflation or unstable currencies accelerate that shift. The BIS described such dynamics as a direct threat to monetary policy control.