BIS Warns Stablecoins Fail Key Monetary Tests

The Bank for International Settlements (BIS) has issued a stark warning about the viability of stablecoins as a form of money, arguing that they fail to meet key criteria essential for a stable monetary system. According to the BIS's 2025 Annual Economic Report, stablecoins fall short in terms of "singleness," "elasticity," and "integrity," making them vulnerable to misuse and posing significant risks to financial stability and monetary sovereignty.

Stablecoins, which have been touted as a bridge between traditional finance and digital assets, are issued by private entities and do not always maintain a fixed exchange rate. This lack of stability undermines the "no-questions-asked" principle that makes conventional money effective. Hyun Song Shin, BIS’s Economic Adviser, highlighted that the value of a stablecoin can fluctuate depending on its issuer or perceived stability, as seen in past failures like TerraUSD. This variability means stablecoins fail the first test of "singleness," which requires money to be universally accepted at face value.

In addition to singleness, stablecoins also lack "elasticity," the ability of a monetary system to expand and contract its supply in response to economic shocks. Central banks use tools like interest rates and liquidity injections to achieve this, but stablecoins require significant upfront funding to mimic such flexibility. The BIS compared stablecoins to a rigid cash-in-advance setup, which cannot scale or contract in moments of crisis or heavy demand, making them unsuitable for the modern financial system.

The report also raised concerns about the "integrity" of stablecoins, noting that they are often transacted through unhosted wallets on public blockchains, making them highly vulnerable to criminal misuse. This vulnerability poses a significant threat to the integrity of the monetary system, as stablecoins can be used for illicit activities without proper oversight.

The BIS further warned that the uncontrolled use of stablecoins, especially across borders, could threaten the monetary sovereignty of smaller or developing economies. If citizens begin to favor dollar-pegged stablecoins over their national currencies, central banks may lose control over domestic monetary policy. This is particularly concerning for newer or smaller markets, where capital flight and inflation risks are already higher. Hyun Song Shin compared stablecoins to 19th-century U.S. private banknotes, which traded at different rates and caused economic instability, highlighting the historical lessons about the limitations of unsound money.

Given these findings, the BIS is calling for strict regulatory frameworks that limit the role of stablecoins. It warned against giving them the same level of trust or functionality as state-backed money. The report emphasized the need for bold action by central banks and other public authorities to push the financial system along the right path. The timing of this warning is particularly noteworthy, as it comes just days after the U.S. Senate passed the GENIUS bill, which, if approved by the House, could increase stablecoin usage across the United States and beyond.