The stablecoin debate has intensified with Tether CEO Paolo Ardoino directly challenging the Bank for International Settlements' preference for tokenized bank deposits. According to Crypto.news, Ardoino responded to BIS General Manager Pablo Hernández de Cos' August 28 Jackson Hole Economic Symposium remarks by questioning why savers would choose fractional reserve products when stablecoins can hold reserves in highly liquid assets such as U.S. Treasuries. "BIS is rightfully worried about the fact that stablecoins are exposing the emperor without clothes," Ardoino stated, arguing that "Why someone should choose to put his savings into a fractional reserve product while stablecoins are fully reserved?" The Tether executive's comments put the reserve structure at the center of a debate that has increasingly divided stablecoin issuers and the banking sector as both compete to move fiat-denominated money onto blockchain networks. Banks are responding to these competitive pressures, with a Federal Reserve survey in September 2025 finding roughly half of respondents were prioritizing growth in at least one stablecoin or digital-asset area over the following three years. As BeInCrypto reports, stablecoins stopped being a crypto product and became a payments product, forcing banks to compete directly with one of their most valuable products: transaction accounts.
The stablecoin market now holds roughly $304 billion, including about $183 billion in Tether and $74 billion in USDC, according to BeInCrypto. J.P. Morgan reports around $7 billion in daily activity across Kinexys products, while CoinVertible reported €156.6 million of euro tokens and $12.55 million of dollar tokens outstanding on August 31. Western Union launched USDPT in May, with Anchorage Digital Bank issuing the stablecoin on Solana, demonstrating growing institutional adoption. However, BIS Chief Pablo Hernández de Cos warned that a shift from traditional bank deposits to privately issued stablecoins could weaken domestic banks by reducing the funding available for lending to households and businesses. As BeInCrypto reports, if stablecoin adoption ultimately shifts funding away from bank deposits rather than recycling those funds back into the banking system, banks could face higher funding costs and potentially less capacity to extend credit. Smaller lenders could face greater pressure because they rely more heavily on customer deposits, with higher funding costs potentially reaching households and small businesses through more expensive credit.
The Bank for International Settlements (BIS) has significantly altered its stance on stablecoin payments, with head Pablo Hernández de Cos reiterating that stablecoins are not a credible payment method at scale compared to tokenized deposits. According to reports from Reuters, de Cos told the Federal Reserve's Jackson Hole Economic Policy Symposium on August 28 that "the claim that stablecoins can function as a large-scale payment mechanism is not persuasive." The BIS head believes that widespread adoption of USD-backed stablecoins outside the U.S would weaken the local domestic monetary policy of most countries, making it harder for governments to manage monetary policy and control cross-border capital flows. Greater reliance on dollar-backed stablecoins could also weaken monetary sovereignty by making local financial conditions more closely linked to U.S. monetary policy, as reported by Reuters. De Cos emphasized that stablecoins could have specialized uses but should not displace tokenized bank deposits as the main vehicle for everyday payments, arguing that tokenized deposits could offer a safer way to bring blockchain-based technology into the financial system. Recent research from the BIS highlights that stablecoins present both opportunities and challenges, incorporating technological advances of tokenisation such as programmability and atomic settlement while offering potential to significantly enhance cross-border payments and provide convenient access to US dollar as stores of value. However, de Cos did not call for a complete ban on stablecoins, stating that stablecoins and tokenized deposits could coexist if regulators defined their roles and imposed appropriate safeguards.
De Cos pointed to several technical weaknesses that could make stablecoins difficult to use as a universal payment instrument. According to Reuters, he cited the lack of 'singleness' of money', meaning users cannot always move between different stablecoins at par without first buying and selling one asset for another. The BIS chief also argued that stablecoin platforms are not genuinely interoperable, which could make payments more fragmented as different issuers operate across separate networks and systems. Additionally, money-laundering controls present another challenge, as applying consistent controls across stablecoin platforms can be difficult, raising questions about how effectively the systems can operate across jurisdictions. These technical limitations contribute to the BIS's conclusion that stablecoins are not ready for payments at scale. Recent research from the BIS identifies that one channel through which risks may materialise is by triggering fire sales of stablecoins' reserve assets, which could impair the functioning of the underlying markets, with financial stress potentially spreading rapidly to the banking sector and other parts of the financial system if stablecoins need to draw down on their bank deposits to meet large redemptions.
The BIS-linked Financial Stability Institute published a comprehensive study comparing stablecoin regulations across five major jurisdictions, revealing significant regulatory divergence. The report found that all five major jurisdictions (United States, European Union, United Kingdom, Hong Kong and Singapore) generally limit issuers to functions such as issuance, redemption and reserve management, but frameworks differ substantially over lending, staking, proprietary trading and custody. The United States and Singapore take relatively restrictive approaches toward specialized non-bank issuers, with the U.S. GENIUS Act requiring payment stablecoins to maintain one-for-one reserves using cash and eligible short-term assets. In contrast, the European Union, United Kingdom and Hong Kong allow certain additional activities when issuers obtain separate authorization. The study identified a potential group-level gap, where restrictions generally apply to the legal entity issuing the stablecoin, not every company within its corporate group. The U.S. Treasury continues implementing the GENIUS Act, having proposed AML and sanctions rules in April that would treat permitted payment stablecoin issuers as financial institutions under the Bank Secrecy Act. Meanwhile, Europe's Qivalis has assembled 37 banks across 15 countries around a planned euro stablecoin, targeting a launch in the second half of 2026, subject to regulatory authorization. Ernesto Olmedo Pereira, Head of Strategy & DeFi at Qivalis, explains the strategic importance: "If every bank launches its own token, you get dozens of thin, incompatible pools instead of one deep, liquid euro instrument." These regulatory differences could encourage issuers to choose structures or locations with broader permissions, potentially fragmenting the stablecoin market across jurisdictions.
