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BIS says dollar stablecoins may bypass capital controls

The BIS study, covering stablecoin flows across more than 130 economies, found dollar backed stablecoins were largely unaffected by broad or specific capital flow restrictions.

Reported · Written up by our desk · Regulation

The Bank for International Settlements warned that dollar-backed stablecoins may evade capital controls, potentially weakening a key policy tool used by governments to manage cross border money flows, according to The Block.

In a study published Tuesday, BIS researchers analyzed stablecoin flows across more than 130 economies and concluded that stablecoins appear largely unaffected by both broad and specific capital flow restrictions because they can circulate outside the regulatory perimeter.

The BIS also suggested that foreign exchange restrictions and capital controls are less effective against stablecoins than against conventional foreign currency bank deposits, and said stablecoin adoption has created a new channel for accessing U.S. dollar liquidity, especially in emerging markets and developing economies.

The BIS warned policymakers in emerging markets may need to rethink their approaches because dollarization is hard to reverse once established, building on the institution's prior skepticism that stablecoins fall short of key monetary system properties.

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