BIS "Cold Water Splash" on Stablecoin: Is It Ever a Real Currency?

A new report from the Bank for International Settlements (BIS) has raised doubts about the long-term role of stablecoins in the global financial system, arguing that they do not meet the three necessary criteria to function as a true currency. BIS, the agency coordinating central banks worldwide, released the annual economic report for 2025 on Tuesday, highlighting concerns about the structure, stability, and integrity of stablecoins. BIS Warning on Stablecoins Lacking Uniqueness, Resilience, and Integrity According to the report, stablecoins do not meet the standards of uniqueness, elasticity, and integrity. These are the core characteristics that BIS considers essential for any instrument hoping to support the modern monetary system. The report states: "Stablecoins do not adequately meet the three desired characteristics of sound monetary agreements and therefore cannot be a pillar of the monetary system in the future." The authors acknowledge that stablecoins have several advantages. These include programmability, anonymity, and ease of use. Their structure also provides faster and cheaper transactions, especially for cross-border payments. But BIS concluded that these advantages are not significant compared to the risks, especially when compared to the money issued by central banks and regulated financial institutions. The report states: "Unlike currency backed by central banks, which is accepted at par and does not require background checks, stablecoins issued by private organizations can be traded at fluctuating prices." This undermines the notion of unity, the concept that currency must have a uniform value throughout the system. Regarding the issue of elasticity, BIS argues that stablecoins cannot respond to shocks or sudden spikes in demand in the same way as central bank money. The report notes that "Any additional stablecoin supply requires holders to make full payment upfront," referring to it as a "strict cash prepayment setup." In contrast, the traditional banking system relies on central banks to inject liquidity during times of stress. The third test, integrity, raises the biggest concern. The report highlights the potential of stablecoins, especially those held in non-custodial wallets, to be used for illegal activities. BIS stated that: “Stablecoins have significant shortcomings in promoting the integrity of the monetary system,” referring to their susceptibility to money laundering, terrorist financing, and evading sanctions. Nevertheless, BIS acknowledges that the demand for stablecoins still exists, particularly in countries with high inflation or limited access to the US dollar. However, they emphasize that their role must be strictly limited and closely regulated. "Society can learn the historical lessons about the limitations of unhealthy currency," the authors warned. "The bold actions of central banks and other public authorities can steer the financial system in the right direction." The report has caused a market wave. Shares of Circle, the issuer of USDC, fell over 15% on Tuesday after BIS announced. Circle's shares reached an all-time high of $299 on Monday but dropped to $222 after the announcement. While BIS criticizes stablecoins, they have a more optimistic view on tokenization. The report describes tokenization as a "transformative innovation" that can strengthen financial infrastructure by building on existing systems. The reaction to this report has been quite mixed. Some people in the cryptocurrency community dismiss these findings as predictable. Jim Walker, Chief Economist at Aletheia Capital, stated: "BIS is excessively opposing cryptocurrency."

He argued that calling on central bank support as a crucial requirement for currency is "ridiculous" considering past currency failures. The BIS report increases regulatory scrutiny of stablecoins globally. Although their use continues to grow, particularly in emerging markets, BIS's message is clear: stablecoins are not ready to replace traditional currencies and may never be able to do so. Despite BIS's Criticism, Stablecoin Momentum Continues to Grow While the Bank for International Settlements (BIS) continues to warn about the integration of stablecoins into traditional finance, global demand for this digital dollar tells a different story. The supply of stablecoins has now exceeded $150 billion, with increasing usage by institutions and retail. In 2024, stablecoins may even surpass Visa for a short period in terms of transaction volume, a milestone that shows how seriously payment giants are making the shift. Large corporations like Amazon and Walmart are said to have explored stablecoin-based systems, putting additional pressure on traditional service providers like Visa and Mastercard. Meanwhile, Ripple is preparing to enter the market with a dollar-backed stablecoin, further increasing competition. The U.S. Senate recently passed the GENIUS Act, a bill aimed at establishing a regulatory framework for stablecoins. If passed by the House of Representatives, it could turn the U.S. into a global hub for dollar-backed digital assets. Even President Donald Trump has expressed support for this law. As stablecoins become increasingly popular, platforms like Coinbase and JPMorgan are building infrastructure for cryptocurrency payments, and nearly 90% of financial institutions are currently using or exploring stablecoin integration. Despite BIS's skepticism, the momentum driving stablecoins continues to grow, with regulations, innovations, and adoption propelling the next phase.