Key Facts

• The BIS argues that stablecoins function more like exchange-traded funds than true money, as their prices often deviate from par and redemptions can be slow or uncertain, with the report stating that stablecoin transfers "settle neither directly nor indirectly on central bank balance sheets."
• The report found that dollar-pegged stablecoins are accelerating dollarization in vulnerable economies, undermining local currencies and evading traditional capital controls, with rising flows of non-dollar currencies into US dollar-pegged stablecoins weakening domestic currencies in the spot market.
• The BIS believes a stablecoin's value is determined by the market's confidence in the issuer's reserves and redemption mechanism — not by a direct, guaranteed claim on the monetary system, as with a bank deposit, and that stablecoins also fail to act as money in the cash-in-advance model.
• The report warned that stablecoins are creating foreign exchange nightmare, with the potential to raise the cost of buying dollars through the FX swap market and expose friction in arbitrage between crypto markets and conventional foreign exchange markets.
• The BIS noted that capital controls that work reasonably well on traditional bank deposits do not translate cleanly to a self-custodied, borderless token, and that measures to restrict cross-border stablecoin use "are, however, likely to be imperfect given the digital bearer-like nature of tokens and the availability of unhosted wallets."