The Bank for International Settlements (BIS) has warned that the rapid expansion of stablecoins risks fragmenting the global monetary system and weakening sovereign monetary control, calling on central banks and the financial industry to accelerate the development of tokenized forms of central bank and commercial bank money as a safer alternative.

In its annual economic report published The Basel-based institution on Sunday offered a stark assessment of the roughly $316 billion stablecoin market, arguing that fiat currency-pegged tokens lack the institutional features required to serve as sheltered and reliable money at scale.

The BIS pointed to structural weaknesses in the management of reserve assets and warned that a significant migration from commercial bank deposits to private digital tokens could reduce bank financing and reduce credit to the real economy.

The report also sends a signal to policymakers that the current regulatory approach to stablecoins may prove insufficient if private digital currencies continue to expand. Instead of positioning stablecoins as a enduring foundation for the future monetary system, BIS said that tokenized commercial bank deposits combined with tokenized central bank money operating on regulated infrastructures offer a more solid path toward modernizing payments while maintaining monetary stability.

Demand for foreign stablecoins connects currency markets with the cryptocurrency ecosystem. Source: BIS Annual Economic Report 2026.

The report focuses particularly attention to the “dollarization of stablecoins”, this means growing employ of dollar-denominated stablecoins in economies with weaker national currencies. According to the BIS, this trend could weaken monetary sovereignty, reduce the effectiveness of domestic monetary policy, reduce banking intermediation and augment exposure to volatile cross-border capital flows, particularly in emerging economies.

Related: BIS Project Agorá shows that tokenized payments can be settled within seconds

BIS raises up-to-date concerns about public blockchain limits

The report also includes one of the toughest BIS assessments yet of public permissionless blockchains such as Bitcoin and Ethereum as the foundations of the monetary system. It argues that decentralized networks that rely on distributed validation and lack a central governance structure have difficulty meeting the scalability, legal accountability and settlement finality requirements expected of systemically essential financial infrastructure.

BIS raises concerns about increasing network fragmentation at Layers 1 and 2.
Source: BIS Annual Economic Report 2026.

At the heart of BIS criticism is the economics of decentralized consensus. The report argues that permissionless public blockchains compensate verifiers for transaction fees that augment as network activity increases, causing congestion, longer confirmation times and higher costs. Structural features of the system, not ephemeral technical shortcomings. According to BIS, these features undermine the efficiency and network effects that are indispensable to a single monetary system.

The Basel-based institution further argues that permissionless blockchains lack the clear governance and accountability framework required for institutional finance. Without an identifiable entity responsible for maintaining system integrity, resolving disputes or ensuring compliance with financial integrity standards, BIS says such networks face significant obstacles to supporting regulated financial activities at scale.

Rather than rejecting tokenization itself, BIS advocates a “unified ledger” architecture that brings together tokenized central bank money, tokenized commercial bank deposits, and tokenized financial assets on programmable platforms operating within a regulated legal and institutional framework.

By retaining the benefits of tokenization, including programmable transactions and faster settlements, while preserving the institutional foundations of the existing monetary system, BIS concluded that financial markets can improve efficiency without sacrificing monetary stability, financial integrity and public trust.

Related: Why stablecoins and SWIFT must coexist