BIS Says Global Cooperation on Stablecoins Is Critically Important

The Bank for International Settlements (BIS) – often called the central bankers’ central bank – has issued another strong warning about stablecoins. This time, its general manager, Pablo Hernandez de Cos, said that without international coordination, stablecoins could fragment markets, undermine monetary policy, and enable regulatory arbitrage.

If every country writes its own rulebook for stablecoins, big firms will shop for the weakest rules, and the whole system could break into pieces.

De Cos spoke in Japan, and his comments come as the US and other major economies scramble to catch up with places like Abu Dhabi and Singapore, which already have stablecoin regulations in place.

Why Is the BIS Worried About Stablecoins?

Stablecoins are cryptocurrencies designed to stay pegged 1:1 to a fiat currency – mostly the US dollar. The two biggest, Tether (USDT) and Circle (USDC), account for about 85% of the $315 billion global stablecoin market.

The BIS has three main concerns:

Concern	What It Means
Monetary and fiscal policy	If stablecoins become widely used for payments, central banks could lose control over money supply and interest rates.
Financial market stress	A “run” on a stablecoin – like the one that briefly broke USDC’s peg in March 2023 – could spread panic across crypto and traditional markets.
Illicit finance	Poorly regulated stablecoins could be used for money laundering or sanctions evasion.

De Cos also pointed out that stablecoins are not really “money”. He said they act more like exchange‑traded funds (ETFs) because they often impose “redemption frictions” – meaning you cannot always get your dollar back instantly at par. This is why they sometimes trade slightly above or below $1.

The Big Debate: Should Stablecoins Pay Interest?

One of the hottest arguments right now is whether stablecoin issuers should be allowed to pay interest, similar to a bank savings account.

De Cos gave his view:

Shifts from bank deposits to stablecoins may be less pronounced if stablecoin holdings remain unremunerated and the opportunity cost of holding them is high – such as during periods of high interest rates. And if prohibitions on paying interest on stablecoins can be enforced.

In simple terms: if stablecoins do not pay interest, people will be less likely to move their cash out of banks, especially when bank rates are high. But enforcing such a ban is not easy, especially across different countries.

What About a “Stablecoin Run”?

De Cos acknowledged that a sudden rush to redeem a stablecoin could cause market stress. However, he said that risk could be “much reduced” if stablecoin issuers had access to:

• Deposit insurance‑type arrangements, or

• Central bank lending facilities (like emergency loans)

Neither of these currently exists for most stablecoin issuers. Tether and Circle operate largely outside the traditional banking safety net.

Where Do Regulations Stand Right Now?

Jurisdiction	Progress
Abu Dhabi / UAE	Already has a clear stablecoin regulatory framework.
Singapore	Also has established rules under the Payment Services Act.
United States	Still debating federal stablecoin legislation; several bills pending.
European Union	MiCA (Markets in Crypto‑Assets) includes stablecoin rules, effective 2024–2025.
UK	Consulting on a stablecoin regime, slower than expected.

Andrew Bailey, Governor of the Bank of England and chair of the Financial Stability Board (FSB), warned last week that progress on international standards for stablecoins has slowed over the past year.

The BIS is not against stablecoins, but it wants them inside a clear, internationally coordinated rulebook. Without that, de Cos warned, we could see either a fragmented market – or a race to the bottom where the laxest jurisdiction wins. Neither outcome is good for financial stability.

Whether the US, EU, and others can agree on common rules before the next big stablecoin crisis is an open question.

FAQ

What is the BIS?

The Bank for International Settlements is an international organisation owned by central banks. It helps coordinate global financial regulation and acts as a bank for central banks.

Why does the BIS care about stablecoins?

Because stablecoins could disrupt monetary policy, create financial stability risks, and bypass anti‑money laundering rules. The BIS wants to prevent a patchwork of national rules that firms could exploit.

Are stablecoins dangerous?

They have risks – runs, de‑pegging, lack of oversight – but they are also widely used for trading and payments. The danger depends on how they are regulated and whether they truly maintain their $1 peg.

What is a “stablecoin run”?

A run happens when many holders try to redeem their stablecoins at the same time, but the issuer does not have enough liquid reserves to pay them all. This happened to USDC in March 2023 when its reserve bank failed, causing the price to drop to $0.87 temporarily.