BIS Chief Warns: Dollar-Pegged Stablecoins Threaten Central Bank Sovereignty

Stablecoins Expansion Poses ‘Dollarisation’ Risk, Says BIS Chief

The rapid growth of dollar-pegged stablecoins threatens central bank sovereignty, warns Pablo Hernández de Cos, general manager of the Bank for International Settlements (BIS). Speaking at the Bank of Japan on Monday, the former governor of the Bank of Spain emphasized that emerging markets and developing economies are particularly vulnerable to the effects of “dollarisation.”

As citizens in these countries increasingly adopt dollar-pegged tokens, local central banks lose their ability to manage monetary policy effectively. For example, the Nigerian central bank, which oversees a nation rapidly adopting stablecoins, has no influence over the U.S. Federal Reserve’s policy decisions—a critical concern, according to Cos.

“[Forex] stablecoins could further challenge monetary transmission and monetary sovereignty if transactions, prices and wages begin to be set increasingly in foreign currencies.”

Why Stablecoins Appeal to Emerging Markets

The reasons for stablecoin adoption mirror historical trends in U.S. dollar usage. In countries plagued by double-digit inflation, the dollar—and now dollar-pegged stablecoins—serves as a relatively stable reserve asset. This trend has accelerated in recent years, driven by both technological adoption and regulatory shifts.

Stablecoin Market Growth and Key Catalysts

Over the past two years, the total market value of stablecoins denominated in all currencies has surged by over 100%, reaching more than $320 billion, according to DefiLlama. Of this, 99.6% is denominated in U.S. dollars.

Several factors have fueled this growth:

• U.S. Legislation: In July, former President Donald Trump signed the Genius Act, the first U.S. law to define stablecoin issuance rules and eligibility criteria.
• Cryptocurrency Bull Market: A surge in Bitcoin’s price, peaking at $126,000 last year, contributed to broader crypto adoption, including stablecoins.

However, growth has slowed significantly in 2025. Stablecoins added over $100 billion from January to October 2024, but this year, fiat tokens have attracted less than $12 billion as Bitcoin’s price declined to as low as $62,000 from its peak.

Three Key Challenges Stablecoins Pose to Central Banks

Cos outlined three major risks posed by stablecoins to monetary sovereignty and financial stability:

• Accessibility and Dollarisation: Dollar-pegged stablecoins are easily accessible via the internet, making them attractive in countries where traditional dollar access is restricted. This could accelerate the shift away from local currencies.
• Currency Devaluation: As people exchange local currencies for digital dollars, demand for stablecoins may drive up their value while weakening the local currency further.
• Capital Control Evasion: Stablecoins enable easier circumvention of capital controls, increasing the volatility of capital flows and complicating monetary policy enforcement.

“Ultimately, money is far more than a technology. It is an institutional achievement that prospers with trust in domestic and international cooperation.”

Call for International Cooperation

Cos stressed the need for coordinated global action to address stablecoin risks. Without international cooperation, divergent regulatory frameworks could lead to market fragmentation or regulatory arbitrage, undermining financial stability.

“I also want to emphasise the critical importance of international cooperation. Without it, divergent regulatory frameworks for stablecoins across jurisdictions could lead to severe market fragmentation or enable harmful regulatory arbitrage.”

As monetary experts speculate that Cos may become the next chair of the European Central Bank (ECB) in 2027, his warnings carry significant weight in shaping future financial regulations.