- The Bank for International Settlements (BIS) released a second paper criticizing stablecoins within three weeks.
- The BIS outlines three main policy challenges: anti-money laundering, monetary sovereignty, and Treasury bill usage.
- BIS says the cross-border use of stablecoins complicates regulation beyond traditional “same risks, same regulations” approaches.
- Regulators express concerns about stablecoins’ potential impact on local economies, currency stability, and interest rates.
- BIS calls for stricter regulation, with few mentions of stablecoin benefits and increased monitoring recommended.
The Bank for International Settlements (BIS) has published a new report focused on the risks and policy issues linked to stablecoins. This is the second critical paper issued by the organization in less than a month. The report, titled “Stablecoin growth – policy challenges and approaches”, highlights regulatory and financial concerns surrounding the rapid expansion of stablecoins.
The latest BIS report follows another recent publication describing stablecoins as “unsound money.” The BIS notes increased policy attention as interest in private digital currencies grows. For example, it cites a rise in the valuation of major stablecoin issuers, such as Circle seeing its share price increase by over six times since its last initial public offering.
The report identifies three major challenges for policymakers. First, it points to anti-money-laundering (AML) risks, particularly because stablecoins enable cross-border transactions that can bypass local regulations. The BIS acknowledges that some crypto exchanges comply with AML standards, but warns that large transaction volumes may overwhelm oversight efforts. According to the report, “employing a request-based approach for billions of transactions with pseudonymous addresses would quickly overwhelm the capacity of those authorities.”
Second, the BIS raises concerns about monetary sovereignty. It says stablecoins tend to see more use during times of high inflation or currency volatility. This can contribute to “dollarization,” a shift where residents use stablecoins instead of local currency, which may make local economies more vulnerable. The BIS notes that less technology-savvy users could face greater risks in volatile situations.
The third policy issue addresses the use of U.S. Treasury bills to back stablecoins—a common practice among major issuers. BIS warns that sudden moves in and out of stablecoins could disrupt interest rates and affect broader financial markets.
On the question of regulation, the BIS report suggests that the usual “same risks, same regulations” framework may not work for stablecoins due to their cross-border nature and variation in local rules. The report states there is a need for a “more restrictive regime,” although it also notes that regulators do not intend to undermine technological neutrality.
The BIS papers have focused mainly on the risks of stablecoins, with limited discussion of potential benefits. According to the reports, increased oversight and stronger regulations are necessary to address stablecoins’ growth and associated policy challenges.
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