Central bank officials are warning of potential threats from the increasing use of U.S. stablecoins for international payments.
Stablecoins — crypto assets pegged to fiat currencies like the dollar — “raise serious risks for financial integrity and can facilitate regulatory circumvention,” the head of the Bank for International Settlements (BIS) said in a speech in Japan Monday (April 20).
The fast-rising use of stablecoins could also “make it easier to evade capital controls” in emerging markets (EMs) and developing countries trying to keep control on financial flows and heighten “dollarisation risks,” said BIS general manager Pablo Hernández de Cos, whose comments were reported by the Financial Times (FT).
Their increasing popularity “opens up new avenues for tax evasion,” he added, citing estimates that “stablecoins now account for most illicit transactions within the crypto ecosystem.”
According to the FT, the increased worldwide use of dollar-denominated stablecoins was mentioned as a threat to financial stability in EMs by multiple financial policymakers when they convened in Washington last week for the IMF and World Bank meetings.
“There will be a focus on the extent to which it moves into domestic currency substitution,” Andrew Bailey, governor of the Bank of England, said during a financial industry event in D.C.
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Bailey, who also chairs the Financial Stability Board, said “the rate of progress” on establishing international rules for stablecoins had slowed.
“If you had asked me a year ago, I would have said we are heading very quickly towards it. But I think it is something that we will have to come to terms with pretty soon,” he added.
Meanwhile, French Finance Minister Roland Lescure said last week that European banks should develop more euro-based stablecoins and tokenized deposits to reduce the region’s dependence on non-European payment providers.
Speaking at a cryptocurrency conference in Paris, Lescure said that the small volume of euro-pegged stablecoins compared to dollar-pegged tokens is “not satisfactory” and that a company formed by a group of European banks to introduce a euro-pegged stablecoin later this year is “what we need and that is what we want.”
In other stablecoin news, PYMNTS wrote last week about the implications of recent security incidents such as the North Korea-linked hack that led to losses of up to $280 million.
“The incidents underscore the fact that major stablecoin issuers retain the technical ability to halt transfers of specific tokens, or even eliminate them entirely through what’s termed as ‘burning,’ often in response to regulatory directives, security incidents or compliance concerns,” PYMNTS wrote.
“For CFOs accustomed to the predictability of bank deposits or money market funds, this can introduce a new category of risk: not market risk, but governance risk embedded in code.”
