BIS Warns Stablecoins Risk Fragmenting Global Finance

The Bank for International Settlements issued one of its strongest warnings yet against private stablecoins, arguing the rapid growth risks fragmenting the global monetary system and undermining financial stability.

The Basel-based institution, often called the central bank for central banks, said in a report published Monday that unbacked stablecoins could create parallel payment systems that bypass traditional oversight. The warning targets the largest issuers by market cap, including Tether and USD Coin, whose combined supply now exceeds $150 billion.

"The proliferation of private stablecoins could lead to a fragmentation of the international monetary system," the BIS said in the report. "This would complicate the implementation of monetary policy and increase risks to financial stability."

The BIS focused on three specific risks. First, stablecoin reserves held in commercial bank deposits could amplify bank runs during stress periods, as happened during the collapse of Silicon Valley Bank in March 2023 when Circle's USDC briefly broke its dollar peg. Second, the lack of consistent reserve transparency across issuers makes it difficult for regulators to assess systemic exposure. Third, cross-border stablecoin flows could bypass capital controls and exchange-rate management tools that central banks rely on.

The report arrives as regulators worldwide accelerate stablecoin rulemaking. The European Union's Markets in Crypto-Assets regulation takes full effect in December, requiring issuers to hold at least 60% of reserves in cash or cash equivalents. The U.K. is finalizing its own framework under the Financial Conduct Authority. U.S. lawmakers are debating the Lummis-Gillibrand Payment Stablecoin Act, which would require full reserve backing and state-level licensing.