Stablecoins Are Built on a Shaky Foundation

The global hype around stablecoins keeps growing — but so do the warnings from those who regulate the financial system. The Bank for International Settlements (BIS), one of the most influential voices in global finance, has gone on record in its latest annual economic report: stablecoins, in their current form, have deep structural flaws that could destabilize the broader financial system if they go mainstream.

What exactly is the problem? According to the BIS, stablecoins fall short on one of the most fundamental properties of money — the principle of "singleness." This means that any form of money should be redeemable at exactly equal value for central bank money. Stablecoins, as they operate today on open, permissionless blockchains, cannot reliably guarantee that. Add to this the challenges around financial crime resilience, redeemability, and interoperability between different ledgers, and you get a picture that is far less rosy than the crypto industry would have you believe.

The political context makes this even more interesting. The US administration has been actively pushing dollar-pegged stablecoins as a tool to cement the dollar's global dominance — most notably through the GENIUS Act. Meanwhile, European Central Bank President Christine Lagarde has publicly questioned whether euro-denominated stablecoins make any sense at all. The BIS report lands right in the middle of this geopolitical tug-of-war.

Beyond trust and design issues, the BIS raises a macroeconomic alarm: widespread stablecoin adoption could seriously disrupt how banks fund themselves and extend credit. High global demand for dollar-pegged stablecoins, in particular, could make capital flows more volatile and undermine monetary sovereignty in countries with weaker economic fundamentals.

So what does the BIS propose instead? Rather than throwing out digital innovation, it advocates for a "unified ledger" model — a platform that brings together different forms of tokenised money in one place, preserving trust while enabling innovation. The BIS-led Project Agorá is already demonstrating this in practice: a public-private initiative involving eight central banks and over 40 regulated financial institutions, built around a shared platform with both a unifying ledger for tokenised commercial bank deposits and separate jurisdiction-specific ledgers for tokenised central bank reserves.

As BIS General Manager Pablo Hernández de Cos put it, the goal is to integrate digital innovation into the existing financial architecture in a way that serves the public interest — and that requires coordination both at home and across borders.

The bottom line? Stablecoins are not going away. But the institutions that underpin global financial stability are sending a clear signal: the current model is not good enough. For businesses operating in payments and financial services, staying ahead of this regulatory and structural shift is not optional — it's essential.

Source: Finextra