Points of Focus

• Pablo Hernández de Cos warned stablecoins act more like ETFs than money in an April 20 speech at the Bank of Japan.
• Despite a $320B market cap and $35T volume, only $390B reflects real economic payments.
• Key concerns include illicit use, weak interoperability, and reliance on single issuers. 

The head of the Bank for International Settlements issued a comprehensive warning at the Bank of Japan on April 20: stablecoins are growing rapidly but do not yet function as money, and if widely adopted in their current form, they could destabilize credit markets, undermine monetary policy, and enable mass regulatory circumvention.

Pablo Hernández de Cos lays out the opportunities and challenges around stablecoins and the case for international cooperation on regulation in a speech @Bank_of_Japan_e https://t.co/AFq9tyPTMg pic.twitter.com/l6EIATHuG0

— Bank for International Settlements (@BIS_org) April 20, 2026

Pablo Hernandez de Cos, BIS General Manager, delivered the speech at a Tokyo seminar coinciding with the tenth anniversary of Japan’s FinTech Center. Japan was an early mover in stablecoin regulation with its 2022 amendments to the Payment Services Act. The result illustrates his point: yen-pegged stablecoins account for less than 0.01% of the market capitalization of US dollar-pegged stablecoins.

Scale without substance

The stablecoin market reached approximately $315B in market cap as of early April, per BIS data cited in the speech. DefiLlama data shows the sector crossed $320B on April 20. Tether’s USDT leads at $187.2B with 58.3% share, followed by Circle’s USDC at $78.2B with 24.4%, with the top five collectively accounting for ~$284B.

Transaction volumes look impressive: roughly $35T annually in 2025. But Hernandez de Cos dissected that number bluntly. Payment-related flows to the real economy totaled approximately $390B, a tiny fraction of the total. The rest is on-chain trading within the crypto ecosystem. Stablecoins are primarily a tool for crypto traders, not a new payments infrastructure.

The gap exposes a deeper structural problem. The two largest issuers, Tether and Circle, impose redemption restrictions, leading to frequent deviations from par value. ‘They currently operate more like exchange-traded funds than like money,’ Hernandez de Cos said. An instrument that can trade below par cannot serve as a reliable medium of exchange.

The singleness and interoperability problem

The speech centers on two requirements that any payment instrument must meet: 

• Singleness – Perfect substitutability at par.
• Interoperability – Seamless transfer with certainty of finality. 

Stablecoins fail both. Without settlement in central bank money, par redemption is not assured. 

In the current scenario, 53% of all stablecoins have been minted on Ethereum, as per data from RWA.xyz. The same USDC token on Ethereum is not inherently interoperable with USDC on Solana. Bridges between blockchains introduce their own risks. Fragmentation destroys the network effects that make money useful: the use of money begets its acceptance, and acceptance begets wider use. Current stablecoin design breaks that loop.

Financial integrity is the core problem

Hernandez de Cos reserves his sharpest language for financial integrity, calling it ‘the major concern.’ Stablecoins circulating on public, permissionless blockchains with unhosted wallets largely evade the KYC requirements that underpin the traditional financial system’s AML framework. Chainalysis data cited in the speech finds that stablecoins now account for the most illicit transactions within the crypto ecosystem. 

The Drift Protocol hack of April 1, in which $232M in USDC moved through Circle’s own CCTP bridge over six hours without intervention, is the most recent real-world example of the enforcement gap the BIS is describing.

Macro consequences at scale

A shift from bank deposits to stablecoins at scale would force banks onto costlier wholesale funding, raising borrowing rates and shrinking credit supply. Lending would migrate to non-bank financial institutions, which historical evidence shows cut credit more aggressively during crises.

For emerging markets, the risk is more acute. Dollar stablecoin adoption echoes financial dollarization, historically persistent once entrenched. BIS research cited in the speech shows that large inflows into dollar stablecoins directly weaken local currencies. Capital controls become easier to evade when transfers happen outside the regulatory perimeter, and that evasion compounds during stress events.

The path forward

The speech does not dismiss stablecoins. Programmability and atomic settlement are genuine technological advances, and cross-border payment friction is a real problem. But the BIS argument is that these advantages should be captured within the existing two-tier monetary system, not outside it.

Central banks, including the Bank of Japan through Project Agora, are exploring tokenized deposits anchored by central bank settlement. With a $320B market, stablecoins are already significant, but the real risk depends on whether they expand from crypto trading into the broader economy.