The head of the Bank for International Settlements has warned that stablecoins still lack several safeguards needed to function as money at scale, putting responsibility on issuers, regulators and payment intermediaries to close gaps in redemption, interoperability and financial-integrity controls.
In an August 28 speech at the Jackson Hole Economic Symposium, BIS General Manager Pablo Hernández de Cos said stablecoins in their current form do not uphold what he called the foundational properties of money. He identified three unresolved control areas: reliable redemption at par, final settlement across fragmented blockchain networks, and consistent application of anti-money laundering and counter-terrorist financing requirements.
The argument is not that tokenisation has no value. Hernández de Cos said programmable transfers, atomic settlement and round-the-clock operation can improve financial infrastructure. His warning is that those technical capabilities do not by themselves provide the institutional protections that let users accept bank money without investigating each instrument or intermediary.
Fragmentation creates a payment-control problem
The BIS assessment starts with a practical acceptance problem. A payer holding Tether’s USDT cannot assume that a merchant or recipient accepting Circle’s USDC will take the other token. Converting between them can require secondary-market trades, introduce fees and expose the user to prices that deviate from one dollar, particularly during stress.
Using the same stablecoin does not necessarily remove the issue. Fiat-referenced tokens circulate across different base networks and scaling layers, while moving assets between chains can depend on bridges or other workarounds. Hernández de Cos described those arrangements as potentially risky or costly and questioned whether settlement finality can be achieved across chains without introducing new vulnerabilities.
For payment companies, the operational issue is therefore broader than whether a token maintains a reserve. Product teams also need to know which token and chain a merchant accepts, how conversion is priced, who bears bridge and smart-contract risk, what constitutes final settlement, and what recovery process applies when a transfer is sent on an incompatible network. Those are customer-protection and liability questions as much as technical integration questions.
Self-custody complicates financial-integrity controls
The speech also focused on activity outside regulated venues. Public blockchains permit transfers between self-custodied wallets, which can occur without the onboarding and monitoring controls used by supervised account providers. Hernández de Cos said this makes consistent AML/CFT enforcement more difficult and asked whether policy frameworks should extend beyond issuers and exchanges to address peer-to-peer transfers.
This is an accountability gap rather than proof that every self-custodied transfer is illicit. The control challenge is that an issuer can screen redemptions and a regulated exchange can identify its customers, but neither arrangement necessarily supplies complete oversight of wallet-to-wallet activity between those endpoints. Payment service providers that connect stablecoins to merchants or bank accounts still have to decide how they assess wallet exposure, investigate suspicious flows and preserve records across multiple networks.
Hernández de Cos said policy can mitigate some risks through reserve and liquidity requirements, clear redemption rights, governance standards, resolution planning and international consistency. He was more cautious about pseudonymous public networks and cross-chain fragmentation, calling those structural frictions harder to resolve.
Reserve design can transmit stress into banking and money markets
The BIS warning also extends to how issuers hold the assets backing their tokens. Hernández de Cos said reserve choices involving bank deposits, short-term government bills or central-bank reserves could affect bank funding, credit conditions and financial stability if stablecoin adoption became large.
His analysis was conditional, not a forecast. A shift from retail deposits into stablecoins backed by concentrated wholesale bank deposits could raise banks’ funding costs. Reserves held in government bills could create fire-sale transmission during a run, while direct access to central-bank reserves could make a stablecoin look like a safe haven and accelerate outflows from banks during stress. The speech noted that recent BIS model-based scenarios point to modest overall output effects, but said the design choices still warrant monitoring, especially under stress.
Smaller banks and their business customers could be more exposed if funding becomes more expensive or rate-sensitive. Stablecoin growth dominated by foreign-currency tokens can also concern jurisdictions seeking to preserve monetary sovereignty, because widespread use for saving, pricing and settlement may tie domestic financial conditions more closely to an external currency.
Tokenised deposits are the BIS preference, but not a finished answer
Hernández de Cos argued that tokenised bank deposits offer a more direct path to programmable payments because they remain claims on supervised banks and can settle through central-bank money. That structure can preserve redemption at par and retain the connection between deposit funding and bank credit.
He also acknowledged that the alternative is not ready at scale. The speech said there are not yet multi-bank, cross-jurisdictional ecosystems issuing tokenised deposits through a genuinely interoperable framework. Permissioned platforms can become walled gardens, larger banks may gain an advantage from network effects, and round-the-clock transferability could speed deposit outflows. Legal finality, governance, cyber resilience and coexistence with legacy systems remain open implementation issues.
The policy direction outlined by the BIS is therefore coexistence with differentiated roles: tokenised deposits carrying most day-to-day and wholesale payments, and stablecoins serving narrower functions under transparent regimes that enforce par redemption for payment use. If a stablecoin cannot meet that standard, Hernández de Cos suggested it could instead be treated as an investment product with corresponding conduct and disclosure rules.
For issuers and payment providers, the practical message is that adoption figures and transaction speed are not sufficient evidence of payment-system readiness. A credible scale-up case also requires enforceable redemption, resilient reserve management, cross-network settlement rules, clear loss allocation and financial-crime controls that remain effective beyond the regulated entry and exit points.