BIS Latest Research: The Future of Stablecoins and the Global Currency Landscape

Global digital finance is developing rapidly, and stablecoins have evolved from niche tools in the cryptocurrency space to new digital assets with cross-border payment and value storage functions, profoundly impacting the international monetary landscape. In May 2026, the Bank for International Settlements (BIS) published Working Paper No. 170, systematically analyzing the development characteristics, operational mechanisms, and impacts of stablecoins on the international monetary system, and proposing three future scenarios and regulatory approaches. The report suggests that in the short term, stablecoins will strengthen the dominance of the US dollar, pose risks to the monetary sovereignty of emerging markets and developing economies (EMDEs), and that their long-term trajectory will depend on adoption models, regulatory responses, and the synergy of the digital financial ecosystem.

Stablecoin Market: Rapid Growth, Dollar Dominance

Stablecoins are privately issued blockchain tokens pegged to fiat currencies or assets to maintain price stability, serving both payment and store of value functions. Since the first stablecoin was launched in 2014, the industry has grown exponentially; by 2026, there are over 300 active stablecoins worldwide, with a total market capitalization exceeding $300 billion.

From a market structure perspective, stablecoins exhibit high concentration and dollar dominance. In terms of quantity, approximately 64% are dollar-pegged stablecoins; in terms of market value, dollar stablecoins account for up to 98%, with USDT and USDC dominating the market, while other stablecoins have relatively small scales. Regarding reserve assets, mainstream fiat-pegged stablecoins primarily hold US short-term government bonds, repurchase agreements, and cash equivalents as core reserves. Some issuers lack transparency and sufficient audits, posing potential redemption risks.

Currently, stablecoin applications are mainly within the crypto ecosystem, serving as pricing and settlement media for crypto asset trading, and as collateral in decentralized finance (DeFi) lending and liquidity protocols. After excluding high-frequency trading, wash trading, and other automated virtual volume activities, actual trading volume is only about 1% of the nominal volume, with retail transactions (per single transaction below $250) accounting for less than 0.9%. Cross-border remittances and retail payments in the real economy are still in early pilot stages. However, in high-inflation, volatile exchange rate emerging markets, cross-border stablecoin flows are continuously rising, becoming an implicit channel to hedge against currency devaluation and bypass capital controls.

Operating Mechanism: A New Offshore US Dollar Vehicle

Stablecoins operate on a “on-chain circulation + off-chain reserves” model: issuers accept fiat currency at a 1:1 ratio and mint tokens, which users hold via digital wallets. They enable 24/7 global transfers on public blockchains, with reserve assets used for redemption to maintain the pegged exchange rate. This model combines features of 19th-century private banknotes, European dollar markets, and money market funds (MMFs). Essentially, it is an offshore US dollar claim on the blockchain, extended through financial innovation to enhance dollar liquidity.

Unlike traditional European dollar markets, stablecoins lack bank credit elasticity and central bank liquidity support; their stability relies entirely on the quality of reserves and market arbitrage mechanisms. The collapse of TerraUSD in 2022 and the temporary decoupling of USDC in 2023 demonstrate that stablecoins without sufficient high-liquidity reserves are highly vulnerable to losing their peg under stress. Global regulation has now reached a consensus: focus on regulating fiat-collateralized stablecoins and exclude algorithmic stablecoins.

From a risk transmission perspective, stablecoin reserves are heavily concentrated in US short-term government bonds, forming a “global demand → stablecoin issuance → US debt accumulation” chain, directly affecting US Treasury yields and the Federal Reserve’s monetary policy transmission efficiency.

Global Impact: Intensifying Currency Hierarchy Divisions and Challenging Emerging Market Currencies

Based on Cohen-Kenen’s international monetary function framework, evaluating stablecoins’ impact on the international monetary system through three core functions—pricing unit, transaction medium, and store of value—and two sectors—private and official—the report concludes that stablecoins have the most direct impact on the private sector’s store of value and transaction functions, with limited influence on pricing units and official functions, but they can implicitly constrain monetary policy autonomy.

• 1. Store of Value: The Core Channel of Digital Dollarization In high-inflation emerging markets, dollar stablecoins do not require foreign currency accounts and can be held anonymously across borders, becoming the preferred risk-hedging tool for residents, forming an “invisible dollarization.” The inflow of stablecoins is highly correlated with local currency depreciation and exchange rate spreads, squeezing local deposits and weakening central bank policy effectiveness.
• 2. Transaction Medium: Improving Cross-Border Payment Efficiency Stablecoins offer real-time settlement, no business hours restrictions, and low transaction fees, rapidly penetrating cross-border remittances and e-commerce scenarios. Their development further reduces friction in dollar usage, expanding the dollar’s share in retail cross-border payments and e-commerce transactions.
• 3. Pricing Unit: Limited Impact, Hard to Break Business Inertia Trade pricing and contract valuation are strongly path-dependent; stablecoins have not yet changed the global pattern of dollar- or euro-denominated trade, only sporadically used in some retail scenarios in high-inflation economies, and have not formed a systemic replacement.
• 4. Official Sector: Indirect Constraints, Not Direct Substitutes Central banks have yet to include stablecoins in foreign exchange reserves or exchange rate intervention tools; official valuation and intervention functions are not directly impacted. However, widespread private sector use of stablecoins could lead to capital control failures and hinder monetary policy transmission, exacerbating the “trilemma”: passive increases in financial openness, with conflicts between exchange rate stability and monetary autonomy.

Three Future Scenarios: From Limited Penetration to Systemic Transformation

Based on scale, regulatory environment, and cross-border impact, the report constructs three mutually exclusive yet parallel future scenarios, covering possible paths from marginal influence to systemic restructuring of stablecoins.

• Scenario 1: Niche Adoption (Baseline) Stablecoins remain confined within the crypto ecosystem, with limited penetration into the real economy. In high-inflation countries, some local holdings occur, but retail payments and trade settlement still rely mainly on local currencies. Regulation focuses on anti-money laundering and consumer protection, with small spillover of capital flows. Sovereignty and financial stability in emerging markets remain largely controllable, and central banks retain full policy autonomy. This scenario aligns with current market features and is the most likely short-term trajectory.

• Scenario 2: Digital Dollarization (High-Risk) US dollar stablecoins become the de facto standard for cross-border retail payments and domestic pricing in emerging markets, with banks providing related services, accelerating dollarization of deposits. Domestic monetary policy becomes ineffective, capital controls are rendered meaningless, and local savings flow into US Treasuries via stablecoins, leading to shrinking local credit markets. Exchange rate transmission effects intensify, and stablecoin runs pose direct risks to financial stability, creating an irreversible dependency on digital dollars. This scenario poses a far greater threat to monetary sovereignty than traditional dollarization and is a critical risk emerging markets must guard against.

• Scenario 3: Domestic Stablecoin Integration (Ideal) Emerging markets, through regulatory authorization, permit licensed institutions to issue local currency stablecoins linked to domestic government bonds and central bank deposits, interconnected with fast payment systems and CBDCs. Reserve assets are limited to local bonds and central bank deposits, balancing technological efficiency and policy autonomy. Stablecoins are used for government payments, e-commerce settlement, and securities clearing, improving payment efficiency and financial inclusion while avoiding foreign currency substitution risks. However, this scenario requires robust regulation, financial infrastructure, and macroeconomic stability, which most low-income emerging markets currently lack.

Regulatory Challenges and Policy Implications: Global Coordination Is Key

The cross-border nature of stablecoins makes single-country regulation ineffective. The report proposes four core policy directions:

• 1. Harmonize Global Regulatory Standards: Implement the Financial Stability Board (FSB)’s stablecoin regulation recommendations, clarifying reserve requirements, disclosure rules, and redemption mechanisms to prevent regulatory arbitrage.
• 2. Strengthen Cross-Border Cooperation: Establish information sharing and risk management mechanisms between issuing and user countries to address cross-border runs and capital flow shocks.
• 3. Enhance Domestic Defenses: Emerging markets should improve macroeconomic stability, optimize local payment systems, and promote CBDC development to counteract the attractiveness of foreign stablecoins.
• 4. Prevent Illegal Activities: Use blockchain traceability technology to combat money laundering, terrorist financing, and other misuse, balancing innovation with risk control.

In summary, stablecoins are not merely a financial innovation but a structural force reshaping the hierarchy of international currencies. In the short term, they may reinforce US dollar hegemony and deepen the subordinate status of emerging markets’ financial systems; in the long term, their evolution depends on global regulatory cooperation, the innovation of domestic digital currencies, and market adoption pathways. For emerging markets, stablecoins are a double-edged sword—offering opportunities to improve payment efficiency and promote financial inclusion, but also posing risks of digital dollarization and erosion of monetary sovereignty.

The future global monetary system will enter a new phase characterized by the coexistence of public digital currencies (CBDCs) and private digital currencies (stablecoins), with competition between fiat currencies and digital dollars. Only through prudent macroeconomic policies, improved regulatory frameworks, and international cooperation can we embrace technological dividends while safeguarding financial security and monetary sovereignty, avoiding falling into a new digital financial dependency trap.