- Pablo Hernández de Cos, the general manager of the Bank for International Settlements, voiced concerns about stablecoins.
- Stablecoins increased by 100% in 2025.
- Cos encouraged consistent global regulations to avoid 'harmful regulatory arbitrage.'
The rapid expansion of stablecoins, specifically those pegged to the US dollar, poses a massive risk to central bank sovereignty.
Pablo Hernández de Cos, the general manager of the Bank for International Settlements, voiced concerns about stablecoins, among other issues, during a speech at the Bank of Japan on Monday.
The former governor of the Bank of Spain added that emerging markets and developing economies are particularly vulnerable to the effects of “dollarisation.”
As citizens in these countries begin adopting dollar-pegged tokens at a large enough scale, it removes a local central bank’s monetary sovereignty to manage an economy.
The Nigerian central bank, which oversees a country that is adopting stablecoins at a rapid pace, has no influence over the Federal Reserve's policy in the US.
That’s a problem, says Cos.
“[Forex] stablecoins could further challenge monetary transmission and monetary sovereignty if transactions, prices and wages begin to be set increasingly in foreign currencies,” Cos said.
To be sure, the reasons for stablecoin adoption in emerging markets are the same as those that drove the adoption of the US dollar historically. As a relatively stable world reserve currency, the dollar has long attracted citizens in countries mired in double-digit inflation.
Stablecoin boom?
Over the last two years, the total market value of stablecoins denominated in all currencies has increased by more than 100% to over $320 billion, according to data from DefiLlama.
The vast majority of that — indeed, 99.6% — is denominated in dollars.
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New legislation in the US under President Donald Trump, along with a red-hot bull market last year, have been key catalysts for this growth.
In July, Trump signed into law the Genius Act, the country’s first piece of legislation to define how stablecoins can be issued and who is eligible.
Much of that growth stalled as Bitcoin tumbled as low as $62,000 from a high of $126,000.
Stablecoins added over $100 billion from January 2025 to October 2025; this year, fiat tokens have attracted less than $12 billion.
Still, Cos, who monetary experts suggest should become the next chair of the European Central Bank in 2027, stablecoins still demand the attention of financiers.
“Ultimately, money is far more than a technology,” he said. “It is an institutional achievement that prospers with trust in domestic and international cooperation.”
As such, Cos suggested that stablecoins pose three new challenges for central banks.
Dollarisation risk
As anyone with an internet-connected device can access dollar-pegged stablecoins, these assets could become more popular in countries where traditional access to dollars is restricted, said Cos.
Second, as people sell local currencies for digital dollars, this can create a premium on digital dollars while exacerbating the local currency's devaluation.
Finally, Cos joins a growing chorus of regulators and authorities pointing out how much easier it can be to evade capital controls when using stablecoins. This could potentially make capital flows more volatile.
“I also want to emphasise the critical importance of international cooperation,” Cos concluded.
“Without it, divergent regulatory frameworks for stablecoins across jurisdictions could lead to severe market fragmentation or enable harmful regulatory arbitrage.”
