Original Author丨 BIS
Source丨China Financial Case Center Compiled by丨Xie Binbin, Qi Zhiping
The rapid global development of digital finance has seen stablecoins evolve from niche tools within the cryptocurrency sphere into novel 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, and proposing three future scenarios and regulatory approaches. The report concludes that stablecoins will reinforce the dominant position 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 adoption patterns, regulatory responses, and synergy within the digital finance ecosystem.
Stablecoin Market: Rapidly Expanding, USD Dominance
Stablecoins are privately issued blockchain tokens pegged to fiat currencies or assets to maintain stable value, combining payment and store-of-value functions. Since the first stablecoin emerged in 2014, the industry has experienced exponential growth; by 2026, there were over 300 active stablecoins globally, with a total market capitalization surpassing $300 billion.
In terms of market structure, stablecoins exhibit high concentration and US dollar dominance. In quantity, USD-pegged stablecoins account for approximately 64%; in market value, USD stablecoins represent as high as 98%, with USDT and USDC dominating the market, while stablecoins pegged to other currencies remain extremely small in scale. Regarding reserve assets, major fiat-backed stablecoins primarily hold US short-term Treasury bonds, reverse repurchase agreements, and cash equivalents as core reserves. However, some issuers lack transparency and insufficient auditing, posing potential redemption risks.
Current stablecoin applications remain predominantly within the crypto ecosystem, serving as trading and settlement media for crypto assets, and as collateral in Decentralized Finance (DeFi) lending and liquidity protocols. After excluding automated wash trading and high-frequency trading, the actual transaction volume is only 1% of the nominal volume. Retail scenarios (single transactions below $250) account for less than 0.9%. Real-economy applications like cross-border remittances and retail payments are still in early pilot stages. However, in emerging markets with high inflation and volatile exchange rates, cross-border stablecoin flows continue to rise, becoming a hidden channel to avoid currency depreciation and circumvent capital controls.
Operational Mechanisms: A New Form of Offshore Dollar Carrier
Stablecoins operate on a "on-chain circulation, off-chain reserves" model: the issuer collects fiat currency at a 1:1 ratio and mints tokens, users hold them via digital wallets, enabling 24/7 global transfers via public blockchains, with reserve assets used for redemptions to maintain the peg. This model combines features of 19th century private banknotes, the Eurodollar market, and Money Market Funds (MMF). Essentially, they are private on-chain claims on offshore 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 demonstrated that stablecoins without sufficient high-liquidity reserves are highly prone to losing their peg under stress. A global regulatory consensus has emerged: focus on regulating fiat-collateralized stablecoins and reject algorithmic stablecoins.
In terms of risk transmission, stablecoins' reserves are heavily concentrated in US short-term Treasuries, creating a transmission chain of "global demand → stablecoin issuance → increased US Treasury holdings," directly affecting US Treasury yields and the transmission efficiency of Federal Reserve monetary policy.
Global Impact: Intensifying Monetary Hierarchy, Challenging Emerging Markets' Monetary Autonomy
Using the Cohen-Kenen international monetary function framework, the report systematically assesses the impact of stablecoins on the international monetary system across three functions (unit of account, medium of exchange, store of value) and two sectors (private and official). The conclusion indicates that stablecoins have the most direct impact on the private sector's store-of-value and medium-of-exchange functions, with limited impact on the unit of account and official sector functions, but they implicitly constrain monetary policy autonomy.
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1. Store of Value: The Core Channel of Digital Dollarization In high-inflation emerging markets, USD stablecoins, requiring no foreign currency accounts and allowing anonymous cross-border holding, have become residents' preferred safe-haven asset, leading to "hidden dollarization". Stablecoin inflows are highly correlated with local currency depreciation and widening exchange rate gaps, squeezing local currency deposits and weakening central bank control capabilities.
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2. Medium of Exchange: Enhancing Cross-Border Payment Efficiency Stablecoins offer advantages like real-time settlement, no operational hour restrictions, and low fees, leading to rapid penetration in scenarios like cross-border remittances and e-commerce. 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 exhibit strong path dependence. Stablecoins have not yet altered the global trade pattern dominated by the US dollar and euro. They are only sporadically used in some retail scenarios in high-inflation economies, not forming a systematic substitute.
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4. Official Sector: Indirect Constraints, No Direct Substitution Central banks have not yet included stablecoins in foreign exchange reserves or as exchange rate intervention tools; official unit-of-account and intervention functions have not been directly impacted. However, widespread private-sector use of stablecoins can render capital controls ineffective and hinder monetary policy transmission, exacerbating the "trilemma": financial openness is passively increased, intensifying conflicts between exchange rate stability and monetary policy autonomy.
Three Future Scenarios: From Limited Penetration to Systemic Change
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.
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Scenario 1: Niche Adoption (Baseline Scenario) Stablecoins remain confined within the crypto ecosystem, with limited penetration into the real economy. Localized holdings emerge in high-inflation countries, but retail payments and trade settlements 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 remain largely controllable, and central banks retain full policy autonomy. This scenario aligns most 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, with banks offering related services, accelerating deposit dollarization. Local currency policies become ineffective, capital controls are rendered meaningless, domestic savings flow into US Treasuries via stablecoins, and local credit markets shrink. Exchange rate transmission effects intensify, stablecoin run risks directly impact emerging market financial stability, leading to irreversible digital dollar dependency. This scenario's impact on monetary sovereignty far exceeds traditional dollarization and is an extreme risk emerging markets must prioritize preventing.
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Scenario 3: Integration of Local Currency Stablecoins (Ideal Scenario) Emerging markets, through regulatory authorization, allow licensed institutions to issue local currency stablecoins, interoperable with domestic fast payment systems and Central Bank Digital Currencies (CBDCs). Reserve assets are restricted to local currency government bonds and central bank deposits, balancing technological efficiency with policy autonomy. Stablecoins are used for government payments, e-commerce settlements, and securities clearing, enhancing payment efficiency and financial inclusion while avoiding foreign currency substitution risks. However, this scenario requires robust regulatory capacity, financial infrastructure, and macroeconomic stability, conditions currently lacking in most low-income emerging markets.
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::
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1. Unify Global Regulatory Standards: Implement the Financial Stability Board's (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 management 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 Illicit Activities: Leverage 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 financial subordination in emerging markets; in the long term, the outcome depends on global regulatory coordination, innovation in local currency digital tools, and market adoption paths. For emerging markets, stablecoins are a double-edged sword offering both opportunities and risks: 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 (CBDCs) and private digital currencies (stablecoins), with competition between fiat currencies and digital dollars. Only through sound macroeconomic policies, robust regulatory frameworks, and international coordination can we embrace technological benefits while safeguarding financial security and monetary sovereignty, avoiding new forms of digital financial subordination.
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