BIS Says Stablecoins Resemble ETFs, Flags Rising FX Risks

The Bank for International Settlements (BIS) has examined stablecoins and artificial intelligence trends in its latest annual report, taking a critical view of how digital tokens function in practice.

While the crypto industry has long promoted stablecoins—tokens pegged to fiat currencies—as a foundation for blockchain-based money and payments, the BIS argues they behave less like money and more like exchange-traded funds (ETFs) or similar investment products.

According to the report, true money is accepted universally as a means of payment “with no questions asked,” whether in cash or bank deposits, and is always treated at face value. Stablecoins, by contrast, do not consistently maintain this property.

The BIS noted that tokenized fiat instruments often trade slightly above or below their peg, resembling ETFs that fluctuate around net asset value. In addition, redemption processes are not always seamless, meaning users converting stablecoins back into fiat may face delays or frictions, similar to ETF redemption mechanics.

“Redemption frictions are common, indicating that current stablecoin designs resemble exchange-traded fund (ETF) shares rather than means of payment,” the report said.

The report also highlighted deeper structural differences. Unlike bank deposits, which ultimately settle on central bank balance sheets, stablecoins do not provide a direct claim on central bank money and cannot guarantee parity across issuers and blockchains under all conditions.

Instead, their value depends on market confidence in issuers’ reserves and redemption systems, rather than a direct sovereign guarantee embedded in traditional banking systems.

The BIS also criticized the “cash-in-advance” model used by stablecoin issuers, where tokens are minted only after users deposit equivalent funds. While this ensures full backing, it prevents flexible money creation similar to commercial banks, which can expand credit and deposits through lending activity.

FX risks and dollarization

The BIS further warned that stablecoins may be reinforcing dollar dominance rather than challenging fiat systems. It found growing flows from non-dollar currencies into USD-pegged tokens, which can place downward pressure on local currencies and increase strain in foreign exchange markets.

The report said this dynamic mirrors traditional “deposit dollarization,” where households shift savings into foreign currencies during periods of inflation or economic instability. Once established, such patterns can persist for extended periods.

Stablecoins, however, may accelerate this process due to their speed and accessibility. The BIS also warned that arbitrage between crypto markets and traditional FX markets can become strained, potentially raising costs in FX swap markets.

Efforts by some countries to restrict stablecoin flows may offer limited protection, the BIS added, given the ease of transferring tokens through self-custodied wallets and decentralized infrastructure.

In effect, traditional capital controls that work in the banking system may be far less effective in a borderless, token-based financial environment.

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