BIS Sounds Alarm on Dollar-Pegged Stablecoin Risk and Digital Dollarization

The Bank for International Settlements (BIS) has expressed concerns about the growing use of dollar-pegged stablecoins, warning that they pose a risk to monetary sovereignty.

BIS head Pablo Hernández de Cos stated that the widespread adoption of USD-based stablecoins outside the US would weaken local domestic monetary policy in most countries. According to him, this could lead to 'digital dollarization', where the value of the local currency is tied to the US dollar.

The BIS prefers bank-led wholesale alternatives, known as tokenized deposits, which it believes eliminate the inherent risk associated with stablecoins. Tokenized deposits offer a more direct path to harnessing tokenization while preserving the monetary system's foundations.

Austin Campbell, an adjunct professor at Columbia Business School, echoed these concerns, stating that USD stablecoins will 'destroy 50%+ of currencies within 30 years'. He also highlighted the dominance of USDT and USDC in the market, with USD-based stablecoins accounting for over 90% of the market supply.