BIS Warns Global Stablecoin Regulatory Fragmentation Will Fuel Arbitrage and Fragment Cross-Border Markets

Gate News message, April 20 — The Bank for International Settlements (BIS) General Manager Pablo Hernandez de Cos warned on Tuesday that divergent stablecoin rules across countries pose a significant threat to cross-border markets and will inevitably spark arbitrage opportunities. The BIS, often referred to as the central bank for central banks, has long maintained skepticism toward stablecoins despite their 1:1 pegging to the U.S. dollar.

Hernandez de Cos acknowledged that rising stablecoin market value reflects genuine demand for money-like instruments in crypto, but cautioned that current structures remain inadequate for widespread use as a payment instrument. He highlighted that stablecoins function similarly to narrow banking, where deposits are backed by safe liquid assets such as central bank reserves or government securities. This shift could weaken the traditional relationship between deposit-taking and lending, forcing more private sector lending to originate from non-bank financial institutions (NBFIs) rather than traditional banks—a concern given that NBFIs historically reduce lending more sharply than banks during financial crises. Hernandez de Cos also warned that sudden redemption surges could force issuers to rapidly liquidate reserve assets, potentially destabilizing markets and triggering systemic stress if they draw down bank deposits.

On regulatory and sovereignty concerns, Hernandez de Cos emphasized that public blockchains and unhosted wallets typically operate outside standard regulatory frameworks and lack adequate know-your-customer (KYC) checks, creating anti-money laundering and countering the financing of terrorism (AML/CFT) vulnerabilities. While major stablecoin issuers freeze and burn funds linked to known bad actors, illicit users continue finding new methods to move money. He stressed that large-scale stablecoin adoption could undermine monetary sovereignty and capital flow controls, particularly in countries where residents lack easy access to dollar accounts, and that cross-border stablecoin activity often escapes the reach of individual regulators.