BIS warns: USDT and USDC are ETFs, not cash; bank runs could spread to the banking system

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BIS General Manager Pablo Hernández de Cos issued a warning at a seminar in Tokyo on Monday: the current architecture of USD-backed stablecoins like USDT and USDC is closer to ETFs than to true cash-like currency. He cautioned that in the event of large-scale redemptions, the fire sale of reserve assets could pose contagion risks to the banking system. The BIS pointed out that these stablecoins fail to meet the standards of a widely used payment instrument due to primary market redemption fees, occasional de-pegging in secondary markets, and money laundering concerns that are difficult to control on public blockchains, calling on global regulators to strengthen international coordination. Meanwhile, the central banks of France, the Eurozone, the UK, and Switzerland have also expressed their stances, shifting from a wait-and-see approach to substantive regulation. (Previous coverage: On-chain Bretton Woods: Stablecoins Reshaping the Global Monetary Landscape) (Background: BIS P2P Payment Report: The Tug-of-War Between Tokenized Securities and CBDCs) Stablecoins are no longer just an internal issue within the crypto circle. In April 2026, BIS General Manager Pablo Hernández de Cos presented his most direct challenge yet to the current architecture of USDT and USDC at a Tokyo seminar hosted by the Bank of Japan: these two largest global USD stablecoins are fundamentally not "cash," but rather closer to "ETFs"—and ETFs are prone to bank runs. He emphasized that if these USD-denominated stablecoins continue to grow and reach a scale capable of competing with traditional currencies, they will have "material consequences" for financial stability and national monetary policies. BIS General Manager Pablo Hernández de Cos delivering a speech at the Tokyo seminar. Photo: CoinTelegraph Hernández de Cos's assessment is based on three core characteristics: First, primary market redemptions are subject to fees or conditions, meaning holders cannot exchange them for USD at par value at any time like a withdrawal. Second, secondary markets (i.e., exchanges) occasionally experience de-pegging, where the price does not always remain at $1. Third, issuers hold short-term government bonds and bank deposits as reserves, making the structure of stablecoins highly similar to money market funds. His conclusion is that these characteristics make stablecoins a source of instability rather than a solution during periods of stress. The stress transmission path described by the BIS is straightforward: once market panic sets in and a large number of holders redeem their stablecoins simultaneously, issuers will be forced to sell off reserve assets (including US Treasury bills and bank deposits). If this sell-off occurs when the market is already under pressure, it will further depress asset prices; meanwhile, large-scale withdrawals of bank deposits will also impact bank liquidity. This mechanism is not fundamentally different from the logic behind the 2023 Silicon Valley Bank run—only the trigger has shifted to on-chain stablecoin redemption waves. Hernández de Cos specifically noted that even with the advantages of cross-border instant transfers and smart contract integration, the current arrangements for USDT and USDC still do not meet the standards required for a "widely used payment instrument." Beyond systemic risk, the BIS also highlighted anti-money laundering (AML) loopholes brought about by public permissionless blockchains and non-custodial wallets. Hernández de Cos pointed out that most on-chain activity for these stablecoins operates outside the traditional AML/CTF (Anti-Money Laundering/Counter-Terrorist Financing) regulatory framework. Unless specific safeguards are set at on/off-ramps, these tools will remain susceptible to illicit use. In other words, as long as users can conduct on-chain operations without ever touching a regulated exchange, regulators will never be able to keep pace with the flow of funds. The BIS warning is not an isolated voice. During the same period, the European regulatory system has been accelerating the tightening of its stance on stablecoins. First Deputy Governor of the Bank of France, Denis Beau, called earlier this month for the EU to go beyond the existing MiCA provisions, suggesting further restrictions on the use of non-EUR-denominated stablecoins in daily payments and tightening rules for issuing the same token both inside and outside the EU—aiming to reduce regulatory arbitrage during periods of stress. This directly targets the application scenarios of USDT and USDC within the EU. The European Central Bank (ECB) has approached the issue from a structural perspective, comparing EUR-denominated stablecoins with tokenized money market funds, noting that both perform liquidity transformation and face run risks, yet operate under systems with vastly different standards for transparency, liquidity management, and regulation. The UK's attitude is even more direct. In March of this year, the UK House of Lords questioned Coinbase on stablecoin issues, with core questions including: whether stablecoins would drain commercial bank deposits, whether they could trigger runs similar to Silicon Valley Bank, and whether they could become tools

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