The Bank for International Settlements (BIS) has intensified its campaign against stablecoins, publishing its second highly critical paper in three weeks that advocates for a “more restrictive regime” in stablecoin policy guidance.
The latest report, titled “Stablecoin growth – policy challenges and approaches,” follows a previous paper that branded stablecoins as “unsound money,” suggesting the central banking institution is attempting to dampen enthusiasm for private digital currencies just as political and market momentum builds.
The timing appears strategic, coming as President Trump’s administration embraces stablecoins and Circle, a major stablecoin issuer, trades at more than six times its recent IPO price. The BIS seems determined to bring expectations down to earth, but the approach raises questions about the institution’s typically balanced analytical style.
The contrast between current reality and regulatory positioning is stark. While the BIS focuses on theoretical risks, stablecoins have demonstrated practical utility in cross-border payments, emerging market currency hedging, and digital commerce.
Three Key Challenges
The BIS identifies three primary policy challenges that reveal both legitimate concerns and regulatory blind spots.
First, anti-money laundering concerns related to stablecoins’ borderless nature fail to acknowledge significant progress in cryptocurrency compliance. The paper dismisses the capacity of authorities to monitor billions of transactions with pseudonymous addresses, ignoring existing blockchain analytics services like Chainalysis and TRM Labs that already provide sophisticated transaction monitoring capabilities.
The second challenge involves monetary sovereignty, where the BIS correctly identifies the genuine complexity of stablecoin adoption during periods of high inflation or exchange rate volatility. Citizens naturally seek alternatives to currencies experiencing economic mismanagement, yet their adoption of stablecoins can exacerbate underlying problems. The risk of dollarization is real, particularly concerning given the dollar’s potentially diminished future reliability compared to historical performance.
The third issue centers on Treasury bill backing for stablecoins, which can impact markets and interest rates, especially during sudden shifts in stablecoin demand. This concern reflects legitimate systemic risk considerations, though the BIS provides limited analysis of potential mitigation strategies or graduated regulatory responses.
Restriction Over Innovation
The BIS’s policy recommendations reveal a preference for restriction over innovation, advocating for approaches that go beyond the traditional “same risks, same regulations” framework. The institution argues that stablecoins’ cross-border nature combined with localized regulations creates unique challenges that justify more restrictive treatment.
In addition, the paper hints at concerns that stablecoins receive lighter regulatory treatment from some legislators, leading to the advocacy for a “restrictive regime.” This approach suggests the BIS views stablecoins as inherently problematic rather than technologies requiring appropriate oversight.
The timing of this regulatory pushback coincides with growing institutional adoption and political acceptance of stablecoins, creating potential tension between global regulatory coordination and national innovation policies.
As the stablecoin ecosystem continues expanding despite regulatory headwinds, the effectiveness of restrictive approaches may prove limited compared to comprehensive, risk-proportionate oversight frameworks.