Basel: The Bank for International Settlements has called for urgent global cooperation to regulate stablecoins, warning that a lack of coordinated action could create serious risks for the international financial system.
Speaking on the issue, BIS General Manager Pablo Hernandez de Cos said that stablecoins are growing rapidly across borders and cannot be effectively managed by individual countries acting alone. He stressed that global coordination is critically important to avoid regulatory gaps and ensure financial stability.
Stablecoins are a type of digital currency designed to maintain a stable value, usually by being linked to traditional currencies such as the US dollar. They are widely used in cryptocurrency markets and are increasingly being considered for everyday payments and cross border transactions because of their speed and lower costs.
However, the BIS warned that their expansion could bring new challenges. Without common global standards, countries may adopt different regulatory approaches. This could lead to fragmentation in the financial system and allow companies to shift operations to jurisdictions with weaker rules, a practice known as regulatory arbitrage.
The BIS also pointed out that stablecoins could weaken the role of traditional banks. If people begin to hold large amounts of money in stablecoins instead of bank deposits, it could reduce banks’ ability to lend and affect economic activity. In addition, some stablecoins offer returns or interest like investment products, which could further draw funds away from banks.
Another concern raised by the BIS is the potential impact on monetary policy. Central banks rely on controlling money supply and interest rates to manage inflation and economic growth. A large scale shift to privately issued stablecoins could make these tools less effective and limit central banks’ influence over national economies.
The institution also highlighted risks related to financial integrity. Stablecoins that operate across borders could be misused for illegal activities such as money laundering if proper safeguards are not in place. This adds to the urgency for coordinated global regulation and strong supervision of issuers.
The warning comes at a time when progress on international stablecoin rules has been slow. Major economies are exploring their own digital currency strategies, including the development of central bank digital currencies and stablecoins linked to national currencies such as the euro or the Chinese yuan. This growing competition has added complexity to efforts aimed at creating unified standards.
Despite the risks, the BIS acknowledged that stablecoins and related technologies have the potential to improve the efficiency of payments and expand financial access. However, it stressed that innovation must be supported by clear rules and effective oversight.
The BIS concluded that strong global standards, closer cooperation among regulators and consistent supervision are essential to ensure that stablecoins develop in a safe and sustainable way without undermining financial stability.