BIS's latest research: The future of stablecoins and the global monetary landscape

Original work丨 BIS

Source丨China Financial Case Center Compiled by Xie Binbin, Qi Zhiping

The rapid development of global digital finance has transformed stablecoins from niche tools in the cryptocurrency realm into new digital assets with cross-border payment and value storage functions, profoundly impacting the international monetary landscape. In May 2026, the Bank for International Settlements (BIS) released Working Paper No. 170, systematically analyzing the development characteristics, operational mechanisms, and impacts of stablecoins on the international monetary system, and proposing three future scenarios and regulatory ideas. The report suggests that in the short term, stablecoins will reinforce the dominance of the US dollar, posing risks to the monetary sovereignty of emerging markets and developing economies (EMDEs), while the long-term trajectory will depend on their adoption models, regulatory responses, and the synergy of the digital financial ecosystem.

Stablecoin Market: Exponential Growth, Dollar Dominance

Stablecoins are blockchain tokens issued privately, pegged to fiat currencies or assets to maintain stable value, serving both payment and value storage functions. Since the launch of the first stablecoin in 2014, the industry has experienced exponential growth; by 2026, there are over 300 active stablecoins globally, with a total market capitalization exceeding $300 billion.

From a market structure perspective, stablecoins exhibit a high concentration and dollar dominance. In terms of quantity, dollar-pegged stablecoins account for about 64%; in terms of market capitalization, dollar stablecoins account for as much as 98%, with USDT and USDC dominating the market, while other pegged stablecoins are of minimal scale. In terms of reserve assets, mainstream fiat-pegged stablecoins primarily hold US short-term Treasury bonds, reverse repurchase agreements, and cash equivalents as core reserves. Some issuers lack transparency and sufficient audits, posing potential redemption risks.

Currently, the application of stablecoins remains primarily within the cryptocurrency ecosystem, serving as a medium for pricing and settlement in cryptocurrency asset transactions, and collateral in decentralized finance (DeFi) lending and liquidity protocols. After excluding high-frequency trading, wash trading, and other automated false volumes, the actual trading volume is only 1% of the nominal volume, with retail scenarios (single transaction amounts below $250) accounting for less than 0.9%. Cross-border remittances and retail payments in the real economy are still in the early pilot stage. However, in emerging markets with high inflation and significant exchange rate fluctuations, the scale of cross-border flows of stablecoins continues to rise, becoming a covert channel to evade currency devaluation and bypass capital controls.

Operational Mechanism: A New Offshore Dollar Vehicle

Stablecoins operate on a "on-chain circulation + off-chain reserves" model: issuers collect fiat currency at a 1:1 ratio and mint tokens, which users hold through digital wallets, relying on public chains to achieve 24/7 global transfers, with reserve assets used for redemptions to maintain the pegged exchange rate. This model combines characteristics of 19th-century private banknotes, the Eurodollar market, and money market funds (MMF), essentially representing on-chain private claims of offshore dollars, extending dollar liquidity through financial innovation.

Unlike the traditional Eurodollar market, stablecoins lack bank credit elasticity and central bank liquidity support, with stability entirely dependent on the quality of reserve assets and market arbitrage mechanisms. The collapse of TerraUSD in 2022 and the temporary decoupling of USDC in 2023 indicate that stablecoins without sufficient high-liquidity reserves are prone to losing their peg under pressure. There is now a global consensus on regulation: focusing on fiat-collateralized stablecoins while excluding algorithmic stablecoins.

From a risk transmission perspective, the concentration of stablecoin reserves in US short-term Treasury bonds has formed a transmission chain of "global demand → stablecoin issuance → increased US Treasury holdings," directly affecting US Treasury yields and the transmission efficiency of Federal Reserve monetary policy.

Global Impact: Intensifying Currency Hierarchy Differentiation, Challenging Emerging Market Currency Autonomy

The report relies on the Cohen-Kenen international monetary function framework to systematically assess the impact of stablecoins on the international monetary system based on three major functions: unit of account, medium of exchange, and value storage, as well as the private and official sectors. The conclusions show that the impact of stablecoins on the private sector's value storage and medium of exchange functions is the most direct, while the impact on the unit of account and official sector functions is limited, but it may implicitly constrain monetary policy autonomy.

• 1. Value Storage: The Core Channel of Digital Dollarization In high-inflation emerging markets, dollar stablecoins can be held anonymously across borders without foreign currency accounts, becoming the preferred choice for residents seeking to hedge risks, leading to "invisible dollarization." The inflow of stablecoins is highly correlated with local currency depreciation and widening exchange rate differentials, squeezing local currency deposits and weakening central bank control capabilities.

• 2. Medium of Exchange: Enhancing Cross-Border Payment Efficiency Stablecoins offer advantages such as real-time settlement, no business hour restrictions, and low transaction fees, rapidly penetrating scenarios like cross-border remittances and e-commerce. Their development further reduces friction in dollar usage, expanding the dollar's share in retail cross-border payments and e-commerce transactions.

• 3. Unit of Account: Limited Impact, Difficult to Break Commercial Inertia Trade pricing and contract pricing exhibit strong path dependence; stablecoins have not yet changed the global trade pricing structure dominated by the US dollar and euro, with only sporadic use in certain retail scenarios in high-inflation economies, and have not formed a systematic alternative.

• 4. Official Sector: Indirect Constraints, Not Direct Replacements Central banks have not yet included stablecoins in their foreign exchange reserves or currency intervention tools, and the official pricing and intervention functions have not been directly impacted. However, widespread use of stablecoins in the private sector could lead to capital controls becoming ineffective and hinder monetary policy transmission, exacerbating the "trilemma": financial openness is passively enhanced, while conflicts between exchange rate stability and monetary policy autonomy intensify.

Three Future Scenarios: From Limited Penetration to Systemic Change

Based on adoption scale, regulatory environment, and cross-border impact, the report constructs three mutually exclusive yet parallel future scenarios, covering potential paths for stablecoins from marginal impact to systemic reshaping.

• Scenario 1: Niche Adoption (Baseline Scenario) Stablecoins remain confined to the cryptocurrency ecosystem, with limited penetration into the real economy. In high-inflation countries, there is localized holding, and retail payments and trade settlements remain primarily in local currencies. Regulation focuses on anti-money laundering and consumer protection, with small capital outflow scales, and emerging market monetary sovereignty and financial stability are generally controllable, allowing central banks to retain full policy autonomy. This scenario aligns closely with current market characteristics and is the most likely short-term trajectory.

• Scenario 2: Digital Dollarization (High-Risk Scenario) Dollar stablecoins become the de facto standard for cross-border retail payments and domestic pricing in emerging markets, with banks providing related services, accelerating dollarization of deposits. Local currency policies become ineffective, capital controls become virtually non-existent, and domestic savings flow into US Treasury bonds through stablecoins, leading to a contraction in the local credit market. The exchange rate transmission effect intensifies, and the risk of stablecoin runs directly impacts financial stability in emerging markets, creating an irreversible dependence on digital dollars. This scenario poses a far greater threat to monetary sovereignty than traditional dollarization and is an extreme risk that emerging markets need to guard against.

• Scenario 3: Local Currency Stablecoin Integration (Ideal Scenario) Emerging markets, through regulatory authorization, allow licensed institutions to issue local currency stablecoins, interconnected with domestic rapid payment systems and central bank digital currencies (CBDC). Reserve assets are limited to local currency government bonds and central bank deposits, achieving a balance between technical efficiency and policy autonomy. Stablecoins are used for government payments, e-commerce settlements, and securities clearing, enhancing payment efficiency and financial inclusion while avoiding the risk of foreign currency substitution. However, this scenario requires robust regulatory capabilities, financial infrastructure, and macroeconomic stability support, which most low-income emerging markets currently lack.

Regulatory Challenges and Policy Insights: Global Coordination is Key

The cross-border nature of stablecoins makes it difficult for single-country regulation to be effective. The report proposes four core policy directions:

• 1. Unified Global Regulatory Standards: Implement the Financial Stability Board (FSB) recommendations for stablecoin regulation, clarifying reserve requirements, disclosure rules, and redemption mechanisms to avoid regulatory arbitrage.

• 2. Strengthen Cross-Border Cooperation: Establish regulatory information sharing and risk management mechanisms between issuing and using countries to address cross-border runs and capital flow shocks.

• 3. Upgrade Domestic Defenses: Emerging markets should improve macroeconomic stability, optimize local payment systems, and promote CBDC development to counteract the attractiveness of foreign currency stablecoins.

• 4. Prevent and Control Illegal Activities: Utilize blockchain traceability technology to combat money laundering, terrorist financing, and other abuses, balancing innovation and risk.

In summary, stablecoins are not merely a simple financial innovation but a structural force reshaping the hierarchy of international currencies. In the short term, they may reinforce dollar hegemony and exacerbate the financial subordination of emerging markets; in the long term, the outcome will depend on global regulatory coordination, innovation in local digital tools, and market adoption paths. For emerging markets, stablecoins are a double-edged sword of opportunity and risk: they can enhance payment efficiency and promote financial inclusion, but they may also trigger digital dollarization and erode monetary sovereignty.

The future global monetary system will enter a new phase of coexistence between public digital currencies (CBDC) and private digital currencies (stablecoins), with competition between fiat currencies and digital dollars. Only through sound macro policies, a robust regulatory framework, and international coordination can we embrace the benefits of technology while safeguarding financial security and the bottom line of monetary sovereignty, avoiding falling into a new type of digital financial subordination dilemma.

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