The Bank for International Settlements (BIS) has warned that dollar-pegged stablecoins pose a risk to monetary sovereignty, particularly in countries outside the United States. Speaking at the Jackson Hole event, BIS head Pablo Hernández de Cos stated that widespread adoption of USD-based stablecoins would weaken the domestic monetary policy of most countries.
Hernández de Cos described stablecoins as not credible payment methods at scale compared to tokenized deposits, which are bank-led wholesale alternatives. He emphasized that the growing adoption of dollar stablecoins has raised concerns about monetary sovereignty and the potential for what he termed "digital dollarization."
USD-based stablecoins currently dominate over 90% of the stablecoin market supply, led by Tether and Circle. While issued by private tech firms, these stablecoins have gained significant traction in emerging markets with high demand for U.S. dollars or where local currencies have collapsed. Tether's USDT is widely used in South American countries, and Bolivia is considering making it a local tender.
In contrast, the BIS advocates for tokenized deposits issued by banks as a safer alternative. Hernández de Cos contended that tokenized deposits eliminate the risks to sovereign monetary control associated with private stablecoins. Banks including JPMorgan are already testing tokenized deposits, and the European Central Bank is pushing for central bank money to be placed on-chain.
Stablecoin transaction volumes declined 37% over the summer, falling from $1.8 trillion at the end of June to $1.13 trillion in August, indicating a slight easing in growth momentum.
