The Bank for International Settlements issued a stark warning about stablecoins in a new report, arguing that private digital tokens fall short of the baseline requirements for reliable money and risk splintering the world's payment infrastructure.
The BIS, which serves as a coordination hub for central banks, said that stablecoins lack the properties needed to function as sound money across borders. The institution called on policymakers to accelerate development of tokenized forms of central bank money (CBDCs) and commercial bank money as safer alternatives to privately issued digital assets.
The warning reflects a hardening consensus among regulators that stablecoins pose structural risks to financial stability if they grow without guardrails. Unlike central bank money, which carries sovereign backing, stablecoins depend on issuer reserves and governance that regulators view as inadequate substitutes for the public balance sheet.
The BIS framed tokenized versions of existing payment channels as the path forward. Rather than allowing private entities to mint money-like instruments that operate in parallel to traditional settlement rails, central banks should lead tokenization work themselves, the institution argued. This would anchor digital payments to proven monetary anchors and reduce the prospect of fragmented liquidity pools that compete with official payment systems.
The report arrives as regulators worldwide tighten stablecoin rules. The U.S. has pushed for legislation requiring stablecoins to be backed fully by reserves and issued only by banks or bank-like entities. The EU's Markets in Crypto-Assets Regulation (MiCA), which took effect in 2023, imposed similar reserve and issuer requirements. Singapore and other financial centers have rolled out their own frameworks.
BIS recommendations carry weight among central bankers, though they do not bind individual countries. The institution has no enforcement power but shapes thinking inside the world's monetary policy establishment. A BIS warning on fragmentation risk can amplify pressure on reluctant jurisdictions to align stablecoin rules or prioritize CBDC work.
The timing matters: many central banks are still in pilot phases for CBDCs. Faster work on tokenized settlement infrastructure could reshape how institutions clear and settle cross-border payments. If CBDCs mature while stablecoin rules remain fragmented by jurisdiction, central bank digital money could displace private tokens simply through regulatory and technical advantage.