The Bank for International Settlements (BIS) has issued a sharp critique of stablecoins, asserting they fall short of the standards required for sound money and are unlikely to become central to the global financial system. The warning comes even as major banks and U.S. lawmakers show increased interest in integrating stablecoins into mainstream finance.

In a preview chapter of its Annual Economic Report, released Tuesday ahead of the full report’s June 29 publication, the BIS argued that stablecoins lack essential features needed for long-term stability and scale. It said they “perform badly” when assessed against systemic integrity criteria.

“It remains to be seen what part stablecoins will eventually play in the monetary system, besides being a gateway to the crypto ecosystem,” said Hyun Song Shin, economic adviser and head of the BIS’s monetary and economic department.

Shin added, “They may have a subsidiary role, but they are unlikely to become the mainstay of the monetary system because they fail to meet the three essential criteria of singleness, elasticity, and integrity.”

This assessment comes just days after the U.S. Senate passed the GENIUS Act, which establishes a regulatory framework for U.S. dollar-pegged stablecoins. Meanwhile, private firms are pressing forward. SG Forge, a subsidiary of Société Générale, recently introduced a new stablecoin—USD CoinVertible—with BNY Mellon serving as its reserve custodian. Fintech firm Fiserv also announced plans this week to roll out FIUSD, a digital token that will be incorporated into its banking and payments infrastructure by the end of the year.

Despite these advances, the BIS remains skeptical. It emphasized that most stablecoins are issued by private entities, lack settlement via central bank reserves, and are subject to price volatility and regulatory evasion. These weaknesses, the BIS argues, make them structurally unreliable as core monetary instruments.

The organization also raised alarms about their use in illicit finance. Stablecoins often rely on unhosted wallets and weak know-your-customer protocols, which can bypass anti-money laundering safeguards.

“While it’s unclear what role stablecoins might play in the future, it’s difficult to see how they can become mainstream with these inherent shortcomings,” said Andréa Maechler, deputy general manager and acting head of the BIS Innovation Hub.

Shin reinforced this view, noting that because stablecoins operate on public blockchains, they are “essentially part of the crypto ecosystem” and cannot meet the same standards for security, compliance, and trust as sovereign money.

Concerns from the BIS echo those raised in a recent EU report warning that U.S.-backed stablecoins could pose serious risks to financial systems worldwide. The report argued that these tokens “create severe risks for third countries, indirectly also affecting the EU.”

Stablecoins currently have a combined market capitalization exceeding $250 billion, according to CoinDesk. But rather than supporting their expansion, the BIS is championing an alternative path: a fully integrated tokenized monetary system underpinned by central bank money.

The BIS is actively developing this model through Project Agorá, a collaborative initiative involving seven central banks and 43 financial institutions. The project, now in its prototyping phase, seeks to transform cross-border payments by tokenizing central bank reserves and commercial deposits within programmable platforms.

“All the major commercial banks currently active in the correspondent banking business are participating,” Shin said.

Further announcements on the project are expected soon. “The BIS is not just theorizing; it is actively working with central banks to test and develop tokenization as the foundation of the future monetary and financial system,” Maechler added.