The BIS also said the use of foreign currency-denominated stablecoins could threaten monetary sovereignty and the effectiveness of today’s foreign exchange regulations, and there is a need for regulatory approaches that are tailored to stablecoins.
The bulletin, “Stablecoin growth — policy challenges and approaches,” said the market capitalization of stablecoins has grown from $125 billion to $255 billion in less than two years, two issuers account for 90% of that market capitalization, and 99% of active stablecoins by market value are denominated in U.S. dollars.
Addressing the risks that BIS said stablecoins pose to monetary sovereignty, the bulletin said their cross-border use has been growing.
“Broad-based stablecoin adoption could provide seamless access to dollar-denominated claims for non-U.S. residents, potentially weakening the effectiveness of domestic monetary policy,” the bulletin said. “Moreover, it could undermine the effectiveness of foreign exchange regulations or capital controls in those countries that employ them as documented for bitcoin … and other crypto assets…”
As for the policy response required by stablecoins, the bulletin said that while regulatory frameworks are often confined to jurisdictional borders, stablecoins transact around the world.
A regulatory framework tailored to stablecoins could leverage the information provided by blockchains to combat money laundering and other unlawful activities, the bulletin said. It also suggested that there’s a need for international cooperation and technological neutrality in regulation.
“Bespoke frameworks need not imply a reduction in regulatory stringency,” the bulletin said. “On the contrary, since many entities within the stablecoin ecosystem operate without established safeguards, a more restrictive regime may be necessary than in traditional finance, where such safeguards are in place.”
The BIS said in June that stablecoins “fall short” as a form of sound money and “without regulation pose a risk to financial stability and monetary sovereignty.”
The organization suggested that a tokenized unified ledger developed by central banks and public authorities will enhance efficiencies without the shortcomings of stablecoins.
