BIS says global split in stablecoin rules will fuel arbitrage and fragment cross-border markets

The Bank for International Settlements (BIS) General Manager Pablo Hernandez de Cos on Tuesday said that the world cannot keep handling stablecoin rules country by country because that puts cross-border markets in massive danger.

The BIS, often called the central bank for central banks, has been skeptical of stablecoin for years, even when the token is pegged 1:1 to the U.S. dollar.

In the latest speech, the BIS chief said rising stablecoin market value proves there is real demand for money-like tools inside crypto, but current structures are still not good enough to serve as a widely accepted payment instrument.

Banks will lose cheap deposits as stablecoin issuers pull finance into new channels, says BIS

Pablo then said stablecoins act a lot like narrow banking, which backs deposits with safe liquid assets like central bank reserves or government debt. If the system leans more in that direction, the old link between deposit-taking and lending gets weaker. Then, more private sector lending would have to come from non-bank financial institutions, not banks. That matters because those firms can be more sensitive to credit spreads and market liquidity. The BIS said past evidence shows NBFIs pulled back lending faster than banks during financial crises.

But Pablo warned that if redemptions surge, issuers may have to dump reserve assets fast. That could damage the markets holding those assets. If issuers draw down bank deposits to meet redemptions, stress could spread into banks and then into other parts of the system.

Just last week, Bank of England Governor Andrew Bailey also warned that progress on international standards for stablecoins had slowed over the last year.

“We do have to have international standards ​to it to underpin assured value. I don’t ​think we can have a situation where we’ve got different ‌rules ⁠of engagement in different countries for that,” Bailey said.

Stablecoin use weakens checks on dirty money and strains policy control across borders

In his Monday speech, Pablo said the biggest concern is that public blockchains and unhosted wallets often sit outside the normal regulatory fence and usually do not have proper KYC checks. In banking, intermediaries handle AML/CFT duties. In crypto, validators keep the record, but users show up as wallet addresses, not clearly named people. He said large stablecoin issuers do freeze and burn funds tied to known bad actors, but illicit users keep finding fresh ways to move money.

Pablo said stronger checks are needed at on-ramps and off-ramps where crypto meets banks, and said AI tools that study blockchain history may help flag suspicious stablecoin flows. It also pointed out that some estimates now put stablecoin at the center of most illicit crypto transactions.

It said the danger grows if stablecoin starts being used not just to save value, but also to price goods, pay wages, and settle transactions. That would hit monetary sovereignty directly.

The BIS said this can happen even in countries where people cannot easily access normal U.S. dollar accounts. It also said large inflows into dollar stablecoin can create pricing gaps versus spot FX markets and weaken local currencies.

Capital flows could become larger and more volatile too, since stablecoin can help users dodge capital controls. Even where countries try to restrict resident and non-resident use, leaks remain likely because cross-border stablecoin activity often happens outside the reach of one local regulator.