Original Work丨 BIS
Source丨 China Financial Case Center Compiled by丨 Xie Binbin, Qi Zhiping
With the rapid development of global digital finance, stablecoins have evolved from niche tools within the crypto sector to become new types of 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) released Working Paper No. 170, systematically analyzing the development characteristics, operational mechanisms, and impact of stablecoins on the international monetary system, while proposing three future scenarios and regulatory approaches. The report concludes that stablecoins will reinforce the dominance of the US dollar in the short term, posing risks to the monetary sovereignty of emerging markets and developing economies (EMDEs). Their long-term trajectory will depend on their adoption models, regulatory responses, and synergy with the digital finance ecosystem.
Stablecoin Market: Soaring Scale, Dollar Dominance
Stablecoins are privately issued blockchain tokens pegged to fiat currencies or assets to maintain stable value, combining payment and storage functions. Since the first stablecoin emerged in 2014, the industry has grown exponentially; by 2026, there were over 300 active stablecoins globally, with a total market capitalization exceeding 3000 billion USD.
In terms of market structure, stablecoins exhibit high concentration and dollar dominance. By number, USD-pegged stablecoins account for about 64%; by market capitalization, USD stablecoins account for as high as 98%, with USDT and USDC dominating the market, while stablecoins pegged to other currencies are minimal in scale. Regarding reserve assets, mainstream fiat-pegged stablecoins use US short-term Treasury bonds, reverse repurchase agreements, and cash equivalents as core reserves. Some issuers lack sufficient transparency and auditing, still posing potential redemption risks.
Current stablecoin applications remain primarily within the crypto ecosystem, acting as the pricing and settlement medium for crypto asset trading, and as collateral in decentralized finance (DeFi) lending and liquidity protocols. Excluding high-frequency trading, wash trading, and other automated nominal volumes, the actual transaction volume is only about 1% of the nominal size. Retail scenarios (single transactions below 250 USD) account for less than 0.9%. Cross-border remittances, retail payments, and other real economy scenarios are still in the early pilot stage. However, in emerging markets with high inflation and volatile exchange rates, stablecoin cross-border flows are continuously increasing, becoming a hidden channel to evade currency depreciation and bypass capital controls.
Operational Mechanism: A New Offshore US Dollar Vehicle
Stablecoins operate on an "on-chain circulation + off-chain reserve" model: the issuer collects fiat currency at a 1:1 ratio and mints tokens, users hold them via digital wallets, and leverage public blockchains for 24/7 global transfers, with reserve assets used for redemption to maintain the peg. This model combines features of 19th century private banknotes, the Eurodollar market, and money market funds (MMF). In essence, they are on-chain private claims on offshore US dollars, extending dollar liquidity through financial innovation.
Unlike the traditional Eurodollar market, stablecoins lack bank credit elasticity and central bank liquidity support. Their stability relies entirely on the quality of reserve assets and market arbitrage mechanisms. The collapse of TerraUSD in 2022 and the temporary de-pegging of USDC in 2023 demonstrate that stablecoins without sufficient, highly liquid reserves are prone to losing their peg under stress. There is now a global regulatory consensus: focusing on regulating fiat-collateralized stablecoins and rejecting algorithmic stablecoins.
Regarding risk transmission, stablecoin reserves are heavily concentrated in US short-term Treasury bonds, creating a transmission chain of "global demand → stablecoin issuance → increased holdings of US Treasuries," directly affecting US Treasury yields and the transmission efficiency of Federal Reserve monetary policy.
Global Impact: Exacerbating Monetary Hierarchy Divisions, Challenging Monetary Autonomy in Emerging Markets
Utilizing the Cohen-Kenen international monetary function framework, the report systematically assesses the impact of stablecoins on the international monetary system from three core functions (unit of account, medium of exchange, store of value) and two sectors (private and official). The conclusions show that stablecoins have the most direct impact on the store of value and medium of exchange functions in the private sector, with limited impact on the unit of account and official sector functions, but they can implicitly constrain monetary policy autonomy.
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1. Store of Value: Core Channel for Digital Dollarization In high-inflation emerging markets, USD stablecoins, which require no foreign currency account and can be held cross-border anonymously, have become the preferred safe haven for residents, leading to "invisible dollarization". Stablecoin inflows are highly correlated with local currency depreciation and widening exchange rate differentials, crowding out local currency deposits and weakening central banks' regulatory capacity.
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2. Medium of Exchange: Enhancing Cross-Border Payment Efficiency Stablecoins offer advantages such as real-time settlement, no business hour restrictions, and low fees, and are rapidly penetrating cross-border remittance and e-commerce scenarios. Their development further reduces friction in using the US dollar, expanding its share in retail cross-border payments and e-commerce transactions.
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3. Unit of Account: Limited Impact, Hard to Break Commercial Inertia Trade invoicing and contract pricing have strong path dependence. Stablecoins have not yet changed the global trade pattern denominated in US dollars and euros. They are only sporadically used in some retail scenarios in high-inflation economies and have not formed systemic substitution.
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4. Official Sector: Indirect Constraints, No Direct Substitution Central banks have not yet incorporated stablecoins into foreign exchange reserves or as exchange rate intervention tools; the official unit of account and intervention functions have not been directly impacted. However, widespread private sector use of stablecoins can lead to ineffective capital controls and impeded monetary policy transmission, exacerbating the "trilemma": financial openness is passively increased, intensifying the conflict between exchange rate stability and monetary policy autonomy.
Three Future Scenarios: From Limited Penetration to Systemic Transformation
Based on adoption scale, regulatory environment, and cross-border impact, the report constructs three mutually exclusive yet parallel future scenarios, covering possible paths from marginal influence to reshaping the system for stablecoins.
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Scenario 1: Niche Adoption (Baseline Scenario) Stablecoins remain confined within the crypto ecosystem, with limited penetration into the real economy. Partial holding occurs in high-inflation countries, while retail payments and trade settlement remain primarily in local currencies. Regulation focuses on anti-money laundering and consumer protection. Capital flow spillover is small, monetary sovereignty and financial stability in emerging markets are largely controllable, and central banks retain full policy autonomy. This scenario aligns closely with current market characteristics and is the most likely short-term trajectory.
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Scenario 2: Digital Dollarization (High-Risk Scenario) USD stablecoins become the de facto standard for cross-border retail payments and domestic pricing in emerging markets, banks provide related services, and deposit dollarization accelerates. Local currency policies become ineffective, capital controls are rendered meaningless, domestic savings flow into US Treasuries via stablecoins, and the domestic credit market shrinks. Exchange rate transmission effects intensify, stablecoin run risks directly impact financial stability in emerging markets, creating irreversible digital dollar dependence. This scenario poses a far greater threat to monetary sovereignty than traditional dollarization and is an extreme risk emerging markets must guard against.
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Scenario 3: Integration of Local Currency Stablecoins (Ideal Scenario) Through regulatory authorization, emerging markets allow licensed institutions to issue local currency stablecoins, interconnected with domestic fast payment systems and central bank digital currencies (CBDC). Reserve assets are limited to local currency government bonds and central bank deposits, balancing technological efficiency with policy autonomy. Stablecoins are used for government payments, e-commerce settlement, and securities clearing, enhancing payment efficiency and financial inclusion while avoiding foreign currency substitution risks. However, this scenario requires sound regulatory capacity, financial infrastructure, and macroeconomic stability, conditions which most low-income emerging markets currently lack.
Regulatory Challenges and Policy Implications: Global Coordination is Key
The cross-border nature of stablecoins determines that single-country regulation is difficult to be effective. The report proposes four core policy directions:
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1. Unify Global Regulatory Standards: Implement the Financial Stability Board (FSB) recommendations on stablecoin regulation, clarifying reserve requirements, disclosure rules, and redemption mechanisms to avoid regulatory arbitrage.
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2. Strengthen Cross-Border Collaboration: Establish regulatory information sharing and risk resolution mechanisms between issuing and using countries to address cross-border runs and capital flow shocks.
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3. Upgrade Domestic Defenses: Emerging markets should improve macroeconomic stability, optimize domestic payment systems, and advance CBDC development to counter the appeal of foreign currency stablecoins.
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4. Prevent and Control Illegal Activities: Utilize blockchain traceability technology to combat money laundering, terrorist financing, and other abuses, balancing innovation and risk.
In summary, stablecoins are not simple financial innovations but structural forces reshaping the international monetary hierarchy. In the short term, they may reinforce dollar hegemony and exacerbate the financial subordination of emerging markets; their long-term impact will depend on global regulatory coordination, innovation in local currency digital tools, and market adoption paths. For emerging markets, stablecoins are a double-edged sword of both opportunity and risk: they can enhance payment efficiency and promote financial inclusion, but may also trigger digital dollarization and erode monetary sovereignty.
The future global monetary system will enter a new stage of coexistence between public digital currencies (CBDC) and private digital currencies (stablecoins), and competition between fiat currencies and digital dollars. Only through sound macroeconomic policies, robust regulatory frameworks, and international coordination can we embrace the benefits of technology while safeguarding financial security and monetary sovereignty, avoiding falling into a new type of digital financial subordination.
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