The Bank for International Settlements (BIS) warned that the spread of stablecoins could fragment the global monetary system and weaken countries' monetary sovereignty.

On June 28 local time, Cointelegraph reported that the BIS, in its annual economic report, assessed that private digital tokens lack institutional requirements to serve as safe and reliable money at scale.

The core point is that stablecoins are difficult to view as the foundation of a future monetary system. The BIS pointed to the roughly $316 billion stablecoin market and said fiat-linked tokens do not meet the conditions required of sound money. It urged faster work to tokenise central bank money and commercial bank money.

The BIS particularly cited structural vulnerabilities in the management of reserve assets. If bank deposits move en masse into private digital tokens, banks' funding base could weaken and credit supply to the real economy could be constrained. It also said regulation alone may struggle to keep up with the pace of stablecoin expansion.

As an alternative, it presented a structure that operates tokenised commercial bank deposits and tokenised central bank money together on regulated infrastructure. The BIS described this approach as a more robust path that can safeguard both payment modernisation and monetary stability.

It also separately pointed to the rapid use of dollar-denominated stablecoins in countries with weak local currencies. The BIS warned that so-called "stablecoin dollarisation" could reduce the effectiveness of domestic monetary policy, weaken banks' intermediation role and, in emerging economies, increase exposure to volatility in cross-border capital flows.

The report also included criticism of public blockchains. The BIS assessed that permissionless blockchains such as bitcoin and ether are unlikely to become the foundation of the financial system. It said the structure of decentralised validation and the lack of central governance make it difficult to meet the scalability, legal accountability and settlement finality required of large financial infrastructure.

The BIS also took issue with the economics of decentralised consensus structures. Because validator compensation can lead to higher transaction fees as network activity increases, congestion, confirmation delays and rising costs are closer to structural characteristics of the system than temporary technical problems, it said. It added that these traits could undermine the efficiency and network effects required for a single monetary system.

It also pointed to limitations from the perspective of regulated finance. The BIS said that without a clear entity responsible for maintaining system integrity, resolving disputes and complying with financial norms, it is difficult to support large-scale regulated financial activity. It viewed at a structural level the problems public blockchains face when combined with regulated funds.

The BIS did not reject tokenisation itself. It proposed an "integrated ledger" structure that places central bank money, commercial bank deposits and financial assets on a single programmable platform. The direction is to preserve institutional foundations of the existing monetary system while leveraging tokenisation's advantages, such as programmable transactions and fast payments.

The BIS also stressed that even if financial markets raise efficiency, they should not sacrifice monetary stability, financial soundness and public trust. It said a future point of contention will be whether stablecoin regulatory debate remains focused on issuer oversight or shifts to institutional design centred on tokenised bank money.