BIS: Stablecoins Perform Poorly in Currency Functions, Likely to Play Only a Supporting Role
N.R. Finch
The BIS annual report flunks stablecoins on all three monetary benchmarks — singleness, elasticity, and integrity — concluding they cannot substitute for real money.
What are the three tests BIS applied?
BIS measures any form of money against three criteria: singleness, elasticity, and integrity. In plain terms = a dollar is worth a dollar everywhere, it still works in a crisis, and no one can game the system.
Stablecoins failed all three. The verdict: they can play "at most a supporting role."
This means → BIS does not see stablecoins as money that needs improvement — it sees them as fundamentally unqualified.
Why can't a stablecoin stay worth exactly one dollar?
Stablecoins have no central-bank backing. In a crisis, there is no lender of last resort to support settlement.
The same stablecoin trades at different rates on different platforms, directly breaking singleness — your one-dollar token might be worth only 0.99 elsewhere.
Bank-issued money follows a "no questions asked" principle — you receive it and spend it. Stablecoins cannot deliver that.
What does the "cash-on-a-barrel" constraint mean?
Banks create new money supply by issuing loans — that elasticity is the backbone of modern finance.
Stablecoins work the opposite way: every new coin requires the holder to pay in full upfront. BIS calls this a "prefunded" constraint.
This reflects a fundamental limit — a stablecoin is essentially a prepaid voucher. It cannot amplify funds the way a bank can.
Illicit use and sovereignty risk — what else worries BIS?
BIS calls stablecoins "the instrument of choice for evading compliance", citing weak KYC (Know Your Customer) controls that enable drug trafficking and money laundering.
Hyun Song Shin, head of the BIS monetary and economic department, warned: "What happens if there is a large-scale redemption run in stablecoins?"
The report flags loss of monetary sovereignty and capital flight as acute risks, especially for emerging-market and developing economies.
What alternative is BIS pushing instead?
BIS proposes a centralized ledger that unifies tokenized deposits from central banks and commercial banks, aiming to cut cross-border payment costs and boost efficiency.
The concept is already in live testing: seven major central banks and 43 commercial institutions are running a joint trial called "Project Agora."
This means → BIS is not against digitization — it wants control to stay with central banks, replacing "unbacked stablecoins" with "regulated tokenized deposits."
Why does this report land now?
Global stablecoin circulation has reached roughly $250 billion, dominated by dollar-pegged tokens such as Tether and Circle's USDC.
The U.S. and UK are each advancing stablecoin regulatory frameworks, with legislation approaching.
The Trump administration has rolled back several Biden-era crypto restrictions. Trump himself backs the crypto venture World Liberty Financial, which issues its own stablecoin USD1. This signals a clear tension between the policy direction in Washington and BIS's stance.
Content is for reference only, not financial advice.