BIS Warns Stablecoins Could Fragment Global Financial System

The Bank for International Settlements warned Sunday that the rapid growth of stablecoins risks fragmenting the global monetary system and weakening sovereign control over money. In its Annual Economic Report, the Basel based institution criticized the roughly $316 billion stablecoin market, arguing fiat-pegged tokens lack the institutional features needed to function as safe, reliable money at scale.

BIS flagged structural weaknesses in how reserve assets are managed and warned that a major shift from bank deposits into stablecoins could shrink bank funding and limit credit available to the broader economy.

The report singled out “stablecoin dollarization,” the growing use of dollar-pegged tokens in countries with weaker currencies, saying this trend could erode monetary sovereignty and increase exposure to volatile capital flows, especially in emerging markets.

Public Blockchains Also Face Sharp Criticism

BIS delivered one of its toughest critiques yet of public blockchains like Bitcoin and Ethereum, arguing decentralized networks struggle with scalability, legal accountability and settlement finality needed for systemically important infrastructure. It said rising transaction fees during high activity make congestion and slower confirmations structural problems rather than temporary glitches, while lacking clear governance undermines institutional trust.

Instead of rejecting tokenization, BIS proposed a “unified ledger” approach combining tokenized central bank money, commercial bank deposits and financial assets on regulated platforms, preserving efficiency gains without sacrificing monetary stability.