Market Fragmentation Concerns Amid Use of Stablecoins
The head of the Bank for International Settlements (BIS) urges world banks to manage how stablecoins are used amid raised concerns on severe market fragmentation.
Pablo Hernandez de Cos, BIS General Manager, warned about the dollar-pegged tokens and the lack of regulatory frameworks governing it.
A stablecoin is a type of cryptocurrency designed to stay close to the value of a stable fiat currency, like the U.S. dollar or euro.
USDT and USDC Make Up 85% of Global Crypto Circulation
There is currently an aggregated supply of 267 billion of Tether’s USDT and Circle’s USDC in the market, making up roughly 85% of the total cryptocurrency in global circulation.
Weapon Against Policy or Parallel Channel
De Cos said that stablecoins have the potential to undermine monetary and fiscal policy to cause financial market stress and hamper the fight against illicit financing.
When used as a parallel channel, stablecoins provide an attractive channel for bypassing insured banks, official exchange rates, and capital controls.
On a wide-scale, banks are at systemic risk – threats of loss of deposits, fee revenues, and customer relationships.
