Key facts
- The Bank for International Settlements (BIS) argues stablecoins are more akin to ETFs than actual money.
- Stablecoins often trade at a premium or discount to their net asset value, similar to ETFs.
- Redemption frictions in stablecoins indicate they resemble ETF shares rather than means of payment.
- Stablecoin transfers do not settle directly or indirectly on central bank balance sheets.
- Dollar-pegged stablecoins are accelerating dollarization in vulnerable economies, weakening local currencies.
- Restrictions on cross-border stablecoin use are difficult to enforce due to the nature of tokens and unhosted wallets.
The Bank for International Settlements (BIS) has issued a critical assessment of stablecoins, suggesting they function more like exchange-traded funds (ETFs) than genuine forms of money. In its latest annual report, the BIS highlighted that stablecoin prices frequently deviate from their intended par value, and the process of redeeming them for fiat currency can be slow or uncertain, mirroring the behavior of ETFs.
The report emphasized that true money is universally accepted without question, a characteristic that stablecoins currently lack. Unlike bank deposits, which are ultimately backed by central bank money, stablecoin transfers do not settle on central bank balance sheets, and their ability to maintain a par exchange rate across different issuers and blockchains under all conditions is not guaranteed. The BIS posits that a stablecoin's value is contingent on market confidence in the issuer's reserves and redemption mechanisms, rather than a direct claim on the monetary system.
Furthermore, the BIS warned that stablecoins are exacerbating dollarization in vulnerable economies. The report observed increasing flows of non-dollar currencies into US dollar-pegged stablecoins, which can weaken domestic currencies and create arbitrage friction with conventional foreign exchange markets. This phenomenon is described as a faster, digital version of traditional deposit dollarization, driven by high inflation and sovereign stress, and is difficult to manage through traditional capital controls due to the borderless and self-custodied nature of tokens.