On Tuesday, June 24, the Bank for International Settlements (BIS) pre-released a special chapter on “Stablecoins” ahead of its official publication of the “2025 Economic Report,” pointing out that stablecoins performed poorly in three key tests and are susceptible to exploitation by criminals.
Stablecoins are cryptocurrencies backed by fiat currencies (such as the US dollar and Hong Kong dollar) or other reserve assets. As the name suggests, they aim to combine the efficiency of cryptocurrencies with the stability of traditional currencies.
Stablecoins are transferred over the internet and claim to be more efficient than international bank transfers. Due to their ability to be held anonymously, stablecoins are popular among cryptocurrency traders and have also become conduits for criminal activities such as drug trafficking and money laundering.
The report warns that stablecoins rely on the anonymity of public chains, circulating “outside the supervision of the issuer,” making them the “preferred choice for illegal purposes bypassing integrity safeguards.”
It also points out that “while stablecoins show promise in tokenization, they have not met the requirements to become the cornerstone of the monetary system in terms of singularity, flexibility, and credibility.”
The Bank for International Settlements also stated that a unified platform consisting of tokenized central bank reserves, commercial bank deposits, and government bonds can “lay the foundation for the next generation of currency and financial systems.”
The US and UK governments are introducing regulatory frameworks for stablecoins to address their growing usage. Currently, stablecoins have a circulation of around $250 billion, dominated by tokens pegged to the US dollar like Tether and Circle’s USDC.
Last week, the US Senate passed a landmark bill allowing authorized private entities to issue stablecoins pegged to the US dollar. Hong Kong will also establish an issuance licensing system for stablecoins pegged to the Hong Kong dollar in August.
In mainland China, some policy advisors and scholars suggest that China needs to introduce a stablecoin supported by the Renminbi sooner rather than later to strengthen the international influence of the Renminbi.
However, the Bank for International Settlements believes that stablecoins perform poorly in key tests, with inconsistent exchange rates and stringent user requirements for full prepayment of supporting assets limiting their utility.
The report states, “As a digital holding tool, it lacks the settlement functions provided by central banks. While the future role of stablecoins remains uncertain, their poor performance in the three tests indicates they can at best play a supportive role.”
Hyun Song Shin, Head of the Monetary and Economic Department of the Bank for International Settlements, stated that tokenization of deposits and central bank currency implies that the main payment method and settlement function of central bank currencies can seamlessly integrate into a single programmable platform.
He added, “It has the potential to transform the securities market, with broad prospects for its application in correspondent banking business.”
“Correspondent banking business” refers to a bank providing financial services to another bank, often from different jurisdictions, to settle international transactions.
In the current banking system, domestic interbank transactions involve at least three steps: payer account payment, payee account payment, or settlement using reserves at the central bank. The process for cross-border payments is even more complex.
The Bank for International Settlements stated that tokenized financial systems aim to collectively execute these steps, achieve true synchronous asset exchanges, and eliminate credit risks between institutions.
To achieve this goal, the Bank for International Settlements urged its central bank members to take proactive action to “drive this transformation,” clarify this vision to the public, provide legal and regulatory frameworks, offer foundational assets, and promote joint experiments with the private sector.
The full “2025 Annual Economic Report” will be released on June 29, exploring trade tensions, global economic challenges, the rise of non-bank financial institutions, and the future of monetary systems.
Established in 1930 and headquartered in Basel, Switzerland, the Bank for International Settlements is an international financial institution jointly owned by 63 central banks, including those of China and the US.
The institution is dedicated to promoting monetary and financial cooperation among central banks worldwide, providing financial services to them, facilitating central banks’ reserve asset management and settlements. Additionally, it conducts research on international financial regulation and policy recommendations, such as the Basel Accords.