Bank for International Settlements Warns Stablecoins Fail Key Test

Stablecoins are enjoying growing popularity and even an increase in regulatory clarity. The European Union has comprehensive rules for the crypto sector including for stablecoins and the US Senate has just passed the GENIUS bill.

But the Bank for International Settlements (BIS) – often seen as the central bankers’ central bank – has just raised fresh concerns about stablecoins.

In a report from 24 June, the BIS wrote that stablecoins “fall short” of being “sound money”, and “without regulation pose a risk to financial stability and monetary sovereignty”.

While the BIS report – with a full annual report due to be published later in the week – highlights the importance of tokenisation as a new chapter and an efficiency booster in “cross-border payments, securities markets and beyond”, it outright dismissed the role stablecoins are likely to play.

While stablecoins may eventually play a subsidiary role in the hinterland of the financial system if adequately regulated, they do not deliver singleness of money (acceptance for payment at par), elasticity (timely discharge of obligations, preventing gridlock) and integrity (safeguarding against financial crime).

Bank for International Settlements

The authors of the report concluded that “Therefore, besides acting as a gateway to the crypto ecosystem, their future role is unclear.”

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Tether Opposes European Efforts, Circle Price Slips

Hyun Song Shin, Economic Adviser to the BIS, warned that Stablecoins don’t offer the guaranteed settlement that central-bank fiat does; instead, like 19th-century private banknotes, they can trade at different rates depending on the issuer, eroding the “always-accepted at face value” reliability of money.

The BIS is also concerned about stablecoin control as MiCA requires stablecoin operators to be licenced in an EU country and hold 60 per cent of assets in a European bank. Tether (USDT), the largest stablecoin, has refused to comply with MiCA rules.

This has led to some of the largest crypto exchanges, such as Binance and Kraken, to delist USDT trading pairs for its European customers.

Meanwhile, Circle’s share price dropped by 15.49 per cent on the BIS news and a cooling of the stablecoin frenzy – Circle is the issuer of the second largest stablecoin, USDC, which is compliant with MiCA rules.

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