In a major policy statement published this week the Bank International Settlement (BIS) has issued a harsh rebuke of Stablecoin Risks BIS Warning itself, stating that they cannot be considered as being actual money and that they present a threat to the financial stability of all assets.In the 2025 issue of its Annual Economic Report, the BIS (widely known as the central bank of central banks), made its remarks in a newly-emerging debate, reviving the earlier argument on the robustness of privately-issued digital currencies like USDT, USDC, and algorithmic stablecoins, their legality, and future.
What the BIS Actually Said
The BIS’s warning centers on the fundamental flaws it sees in stablecoins — digital assets typically pegged to the U.S. dollar or other fiat currencies.
“Stablecoins are a misnomer. While they attempt to replicate the functions of money, they lack the necessary backing, legal frameworks, and trust to serve as a reliable medium of exchange, store of value, or unit of account.”
— BIS Annual Economic Report, 2025
Key Takeaways from the BIS Report:
- Stablecoin does not pass the three functions of money, medium of exchange, store of value and unit of account.
- The risk of redemption is high particularly when stress in the market strikes.
- Over the majority of stablecoins, existing reserves are inherently centralized and opaque.
- It might be purchased widely, and the sovereignty of money and monetary policy might be undercut.
The Stablecoin Risks BIS Warning ended by calling a keen global regulation coordination and indicated that the development of stablecoins must be actively discouraged unless it is closely regulated.
Why the BIS Is Sounding the Alarm
The BIS argues that stablecoins can become systemically dangerous due to:
Redemption & Liquidity Risk
Many stablecoins lack real-time liquidity and face redemption pressure during volatile periods — as seen during the collapses of TerraUSD (UST) in 2022 and USN in 2023.
Market Concentration
The stablecoin markets are extremely concentrated, with the top issuers of the token (e.g. Tether, Circle) possessing most of the supply in the market. This gives disproportionate influence to private companies.
Shadow Banking Concerns
Some stablecoins use reserves parked in unregulated money market instruments, raising fears of hidden exposure to risky assets.
Cross-Border Impact
In emerging economies, stablecoins can lead to de-dollarization or foreign currency substitution, reducing the effectiveness of local central banks.
Are Stablecoins Really Failing as Money?
While the BIS raises valid concerns, many in the crypto industry argue that stablecoins do function as money — just in a new, digital-native context.
Stablecoins Succeed In:
- Enabling fast, borderless payments
- Offering dollar-like stability for DeFi users and crypto traders
- Supporting Web3 economies (NFTs, GameFi, and on-chain payroll)
But They Struggle With:
- Maintaining long-term peg stability (especially algorithmic coins)
- Providing full reserve transparency and audits
- Gaining mainstream merchant acceptance outside crypto ecosystems
The Bigger Picture: BIS and CBDCs
The BIS is not just a critic of stablecoins — it’s a champion of Central Bank Digital Currencies (CBDCs). It has supported dozens of central banks in testing digital versions of fiat currencies, including:
- Digital euro, digital yen, and e-CNY pilots
- Project mBridge: A multi-nation CBDC settlement platform
- New frameworks for programmable money and cross-border regulation
Critics argue the BIS’s negative stance on stablecoins is strategic, aimed at clearing the way for government-controlled digital currencies.
“The BIS supports innovations it can control. It sees CBDCs as safe, and stablecoins as competition.”
— CryptoPolicyThink, June 2025
What This Means for the Crypto Market
The BIS statement will likely add regulatory pressure on stablecoin issuers around the world.
Possible Consequences:
- Stricter licensing for issuers like Tether and Circle
- The prohibition and curtailment of algorithmic stablecoin in other jurisdictions
- Increased speed of development of decentralized alternatives (e.g. crvUSD, USDM, GHO)
- Institutional shift toward CBDCs and regulated tokenized deposits
Already, regulators in the EU and Singapore have signaled they may revisit frameworks for how stablecoins are classified and allowed to operate.
Conclusion
The BIS’s 2025 statement is one of the strongest warnings yet from a major financial institution against the widespread use of stablecoins. Whether motivated by legitimate risk or a desire to protect sovereign monetary power, the message is clear: private stablecoins are under global scrutiny.As crypto continues to mature, the future of stablecoins will likely depend on transparency, decentralization, and regulatory adaptability.