A $1 stablecoin rarely trades at $1 — at least not reliably — and the Bank for International Settlements just said so bluntly in its 2026 annual report. The BIS argues the entire stablecoin model fails the basic test of money: it cannot guarantee exchange at par across issuers and blockchains under all conditions.
Where Stablecoins Break the Definition of Money
Money is accepted as a means of payment “with no questions asked.” Stablecoins don't meet that bar. Secondary-market prices of tokenized fiat deviate from par (even if moderately), and redemptions involve delays or costs — just like ETF share redemptions. The BIS puts it directly: “Redemption frictions are common, indicating that current stablecoin designs resemble exchange-traded fund (ETF) shares rather than means of payment.”
Worse, stablecoin transfers “settle neither directly nor indirectly on central bank balance sheets.” A bank deposit has a direct claim on central bank money; a stablecoin is backed only by the market's confidence in the issuer's reserves and redemption mechanism. That's not money — that's another investment vehicle.
The Cash-in-Advance Trap
Stablecoins also fail the cash-in-advance model. Under that model, an issuer mints a new token only after a user deposits the equivalent cash — a 100% pre-funding requirement. That means the issuer cannot flexibly expand supply to meet economic demand the way a commercial bank does by issuing loans that create new deposits. A commercial bank doesn't wait for a customer to walk in with cash first. Stablecoins can't do that; they're just wrappers for existing money.
The Dollarization Machine
Crypto was pitched as an alternative to fiat, especially the dollar. The BIS shows stablecoins are doing the opposite. Rising flows of non-dollar currencies into dollar-pegged stablecoins weaken domestic currencies in the spot market. These flows expose friction between crypto markets and conventional FX markets, and may raise the cost of buying dollars through the FX swap market.
The BIS frames this as a faster version of deposit dollarization: high inflation and sovereign stress drive inflows into foreign stablecoins. Once that dollarization takes hold, it tends to persist for years. And enforcement is nearly impossible — capital controls that work on bank deposits fail against “the digital bearer-like nature of tokens and the availability of unhosted wallets.”
If the BIS is right, the stablecoin industry's path to being 'money' requires central bank integration — otherwise they'll remain volatile investment vehicles with outsized macroeconomic side effects.
Source: BIS warns stablecoins are more like ETFs than actual money, and they're creating FX risk
Domain: coindesk.com
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