BIS warns dollar-pegged stablecoins reinforce dollar dominance, not challenge it

The US Genius Act, passed in 2025, actively encourages the growth of dollar-pegged stablecoins as a tool to extend USD dominance globally. So the US government promotes what the BIS warns about.

The BIS report modeled what happens if stablecoins scale significantly beyond their current size. Even at $1 to $3 trillion in total issuance, the net output effects from stablecoin activity may be "modestly negative," according to the analysis. Part of the mechanism involves bank funding costs. Deposits flow out of traditional banking systems into stablecoin issuers, who park reserves in US Treasuries and money market instruments. Banks then may need to offer higher rates to compete for deposits. That raises lending costs, tightens credit, and slows economic activity.

For emerging market assets, the dollarization concern is real and measurable. Countries like Turkey and Argentina have already seen significant stablecoin adoption as citizens seek dollar exposure outside formal banking channels.

For the broader crypto market, the BIS framing of stablecoins as "not real money" could influence how regulators treat them in banking and payments contexts. If stablecoins are legally categorized more like ETF shares than like deposits or cash equivalents, that changes the capital requirements and consumer protection rules that apply to them.

The BIS said stablecoins are more like ETF shares than money. The report runs 155 pages and covers tokenized deposits and central bank digital currencies alongside stablecoins. The full document is available on the BIS website.