Dollar stablecoins risk behaving like fragile investmentfunds at the heart of the financial system, the Bank for InternationalSettlements (BIS) has warned, calling for tighter global coordination onregulation before the market grows large enough to rival traditional money.Singapore Summit: Meet the largest APAC brokers you know (and those you still don't!).BIS General Manager Pablo Hernández de Cos said US dollar‑denominatedtokens could have “material consequences” for financial stability and economic policy if their useexpands beyond today’s crypto‑tradingniche.US Dollar Stablecoins Resemble ETFsDe Cos drew a direct comparison between the largest dollarstablecoins and exchange‑traded funds (ETFs), pointing tofees and conditions on primary redemptions and repeated deviations from the one‑to‑onedollar peg in secondary markets.He warned that this structure creates a specific contagionchannel because issuers back their tokens with short‑termgovernment debt and bank deposits, not simple cash balances. In a period of stress, a rush by holders to cash out couldforce issuers to dump Treasury bills and pull funding from banks, amplifyingvolatility in key funding markets rather than insulating them.At the same time, the BIS chief highlighted financialintegrity gaps tied to the use of public, permissionless blockchains andunhosted wallets.Read more: Hong Kong Opens Stablecoin Market with First Approvals for HSBC and AnchorpointA significant share of stablecoin activity takes placeoutside traditional anti‑money‑launderingand counter‑terrorism financing controls, making the tokensattractive for illicit use unless authorities harden checks at the on‑and off‑rampslinking crypto platforms with the banking system.De Cos also linked the rise of US dollar‑peggedtokens to the risk of renewed dollarisation pressures in emerging markets,where households already use stablecoins as offshore dollar savings and, insome cases, for domestic payments. Wider adoption could dilute monetary policy transmission,undermine local currencies and open new channels to evade capital controls, hesaid.Central Banks in Europe, the UK and SwitzerlandIn parallel, major jurisdictions are moving ahead with theirown stablecoin regimes, though not yet on fully harmonised terms.The European Union’s Markets in Crypto‑Assets Regulation (MiCA), upcoming UK rules on fiat‑backed tokens and Switzerland’s new framework for Swiss franc‑linked coins all require fullreserve backing, clear redemption rights and direct supervision of issuers,while taking different approaches on scope and implementation. De Cos argued that without closer global alignment, unevenstandards will either fragment markets or push activity into lighter‑touchcentres, undercutting more stringent regimes and leaving cross‑borderrisks unresolved.This article was written by Jared Kirui at www.financemagnates.com.