BIS: Stablecoins Act Like ETFs, Amplifying Foreign‑Exchange Risks

Foreign exchange nightmare

Crypto was intended to serve as an alternative to traditional fiat currencies, particularly the U.S. dollar. However, stablecoins are now driving the opposite effect, accelerating dollarization, according to the Bank for International Settlements (BIS)

The report documented increasing inflows of non‑USD currencies into dollar‑pegged stablecoins, noting that such flows can undermine domestic currencies in spot markets. These movements also reveal arbitrage frictions between crypto and conventional FX markets and could raise the cost of acquiring dollars via FX swap arrangements.

The BIS characterizes the trend as a rapid iteration of a familiar issue: deposit dollarization, where households hold foreign‑currency bank deposits during domestic economic turmoil. High inflation and sovereign stress similarly prompt larger inflows into foreign stablecoins, and once established, this dollarization typically persists for years, the report observes.

Enforcement challenges are more acute for stablecoins, the BIS notes. Several countries—especially emerging‑market and developing economies—have already introduced restrictions on cross‑border stablecoin activity. Nevertheless, such controls “are likely to be imperfect given the digital bearer‑like nature of tokens and the prevalence of unhosted wallets.”

In essence, capital‑control mechanisms that function effectively for traditional bank deposits do not map cleanly onto self‑custodied, borderless tokens.

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