The Bank for International Settlements (BIS) has warned that the rapid expansion of stablecoins risks fragmenting the global monetary system and weakening sovereign currency controls, and has called on central banks and the financial industry to accelerate the development of tokenized forms of central and commercial bank money as a safer alternative.
In its annual economic report released on Sunday, the Basel-based institution gave a scathing assessment of the roughly $316 billion stablecoin market, arguing that tokens pegged to fiat currencies lack the institutional characteristics needed to function as safe and reliable currencies at scale.
BIS pointed to structural weaknesses in reserve asset management and warned that a significant shift from commercial bank deposits to private digital tokens could reduce bank funding and constrain credit to the real economy.
The report also provides a signal to policymakers that current regulatory approaches to stablecoins may prove insufficient if private digital currencies continue to expand. Rather than positioning stablecoins as a durable foundation for the future financial system, BIS said the combination of tokenized commercial bank deposits and tokenized central bank money operated on regulated infrastructure provides a more robust path to modernizing payments while maintaining financial stability.
Demand for foreign stablecoins connects the foreign exchange market and the cryptocurrency ecosystem. sauce: BIS Annual Economic Report 2026.
The report specifically focuses on the “dollarization of stablecoins,” or the growing use of dollar-denominated stablecoins in economies with weaker domestic currencies. According to BIS, this trend could weaken financial sovereignty, undermine the effectiveness of domestic monetary policy, reduce bank intermediation, and increase exposure to volatile cross-border capital flows, especially in emerging market countries.
Related: BIS Project Agora shows that tokenized payments can be settled in seconds
BIS raises new concerns about the limits of public blockchains
The report also provides one of the BIS’s strongest criticisms yet of public permissionless blockchains such as Bitcoin and Ethereum as the basis for monetary systems. The paper argues that decentralized networks that rely on decentralized verification and lack a central governance structure struggle to meet the scalability, legal accountability, and finality of payments requirements expected of systemically important financial infrastructure.
BIS has raised concerns about increasing fragmentation across Layer 1 and Layer 2 networks.
sauce: BIS Annual Economic Report 2026.
Central to the criticism of BIS is the economics of decentralized consensus. The report argues that public, permissionless blockchains compensate validators through transaction fees that rise as network activity increases, and are a structural feature of the system that causes congestion, longer verification times, and higher costs, rather than a temporary technical flaw. According to BIS, these characteristics undermine the efficiency and network effects essential to a unified monetary system.
The Basel-based institution further argues that permissionless blockchains lack clear governance and accountability frameworks needed for institutional finance. BIS argues that such networks face significant obstacles in supporting large-scale regulated financial activities, as there is no identifiable entity responsible for maintaining system integrity, resolving disputes, and ensuring compliance with financial prudential standards.
Rather than rejecting tokenization per se, BIS advocates for a “unified ledger” architecture that combines tokenized central bank funds, tokenized commercial bank deposits, and tokenized financial assets on a programmable platform that operates within a regulated legal and institutional framework.
BIS said that preserving the institutional foundations of the existing monetary system while preserving the benefits of tokenization, such as programmable transactions and faster settlement, can improve the efficiency of financial markets without sacrificing financial stability, financial integrity, and public confidence.
Related: Why stablecoins and SWIFT must coexist
