Pablo Hernández de Cos, general manager of the Bank for International Settlements, warned that stablecoins—especially those denominated in US dollars—could pose significant risks to financial stability and economic policy if they grow large enough to rival traditional money. Speaking at a Bank of Japan seminar in Tokyo, he urged stronger international coordination to address those risks.
Hernández de Cos said current stablecoin arrangements are insufficient for a payments instrument used widely. While such tokens can speed cross-border transfers and integrate with smart contracts, the largest dollar-linked coins like USDT and USDC more closely resemble investment products than cash. He pointed to fees and conditions on primary redemptions and instances of secondary-market price divergence from par as evidence that they do not behave like perfectly cash-like instruments.
Those characteristics, he argued, make large stablecoins function similarly to exchange-traded funds while nonetheless creating run and contagion risks. Many issuers hold reserves in short-term government debt and bank deposits; in a stress event, rapid outflows could force reserve sales into stressed markets or pass funding pressure on to banks.
Hernández de Cos also warned that activity on public, permissionless blockchains and in unhosted wallets often lies outside standard anti-money laundering and counter-terrorist financing controls, increasing the appeal of stablecoins for illicit activity unless bespoke safeguards are imposed at on- and off-ramps.
Policymakers worldwide are debating how to regulate fast-growing stablecoins and other tokenized, money-like instruments. European officials have sought stricter limits: Bank of France First Deputy Governor Denis Beau urged the EU to go beyond current crypto rules by limiting non-euro-denominated stablecoins for everyday payments and tightening measures to prevent regulatory arbitrage during stress.
The European Central Bank has contrasted euro-denominated stablecoins with tokenized money market funds, noting both perform liquidity transformation and face run risks but operate under different transparency, liquidity-management and regulatory frameworks that influence how stress transmits to funding markets.
Other jurisdictions are also adjusting policy. In the U.K., members of the House of Lords questioned Coinbase about whether stablecoins could drain bank deposits, provoke bank runs, or enable crime as the government finalizes a bespoke fiat-backed token regime. In Switzerland, UBS and several banks have launched a franc-denominated stablecoin pilot in a regulatory sandbox to test blockchain payments while keeping the instruments tied to the regulated financial system.
This article was produced in line with the publisher’s editorial standards; readers are encouraged to verify facts independently.