As Stablecoins Move Money at Internet Speed, BIS & US Fed Exhort Caution

Forget slow banks! $200B “Digital Dollars” now move at internet speed, slashing fees to pennies. But regulators urge caution: Could this surge trigger the next financial crisis?

• Massive Growth, Massive Risk: Stablecoins ($200B+ AUM) are exploding, rivaling major money market funds & buying US Treasuries at scale. However, the BIS warns this rapid, largely unregulated growth blurs lines with traditional finance, posing serious threats to monetary policy, transparency, and financial stability – especially during market stress.
• Industry Split: Threat vs. Tool: Major banks (JPMorgan, BofA) see stablecoins as a competitive threat, forcing strategic reassessments. Meanwhile, payment giants (Visa, Mastercard) are actively embracing them.
• Regulation Arrives, Doubts Remain: The GENIUS Act provides the first major US regulatory framework for stablecoins, aiming to legitimize and stabilize them. Despite this and their clear advantages (speed, low cost), the Federal Reserve cautions that touted cost savings may erode with scale, similar to Bitcoin, and questions their long-term cost advantage over traditional systems.

Almost instantaneous transactions; less than $0.1 fees per transaction; and nearly non-existent  foreign-exchange fees for cross-border transactions, stablecoins, promising these advantages, have emerged as a potential game-changer for global payments systems. An international credit card company gushes to say: “think of stablecoins as digital dollars that move at internet speed,” Nevertheless, despite the euphoria, the Bank of International Settlements (BIS) delivered a carefully worded caution: “Their growth blurs the lines between cryptocurrency and traditional finance and carries implications for monetary policy, transparency of stablecoin reserves and financial stability – particularly during periods of market stress.”

The market is dominated by stablecoins that are pegged to the US dollar, with backing assets composed mostly of dollar-denominated short-term instruments such as US Treasury securities. As of March 2025, their combined assets under management exceeded $200 billion, surpassing the short-term US securities holdings of major foreign investors. In 2024, they purchased $40 billion of US Treasury bills, similar to the largest US government money market funds and larger than most foreign purchases.

A recent report from blockchain data firm Chainalysis reveals that these dollar-pegged digital tokens accounted for 63% of illicit transaction volumes in 2024 – an unprecedented leap that signals a sea change in the criminal underbelly of cryptocurrency. 

BIS provides a framework of three tests for monetary systems. These are: Singleness –  Universal acceptance at par value (central bank reserves as settlement backbone); Elasticity – Flexible liquidity provision (e.g., RTGS systems, overdrafts) to prevent gridlock and Integrity – Robust safeguards against financial crime. Stablecoins, according to BIS, perform poorly when assessed against the three tests for serving as the mainstay of the monetary system.

The challenges from stablecoins have forced major banks like JPMorgan Chase and Bank of America to reassess their strategies. During recent earnings calls, these institutions acknowledged stablecoins as competitive threats, indicating a readiness to explore their own digital currency solutions. Meanwhile payment companies like Visa and Mastercard are embracing them to create new value propositions.  

Visa has launched its first seven-day-a-week stablecoin settlement seeking to embrace what opportunities currently exist for integrating stablecoins into its offering. The Visa ecosystem already supports crypto and stablecoins through stablecoin-linked cards that allow issuers to move from fiat currencies to stablecoins and vice versa. To date, Visa claims to have facilitated almost $100 billion in purchases of cryptocurrencies and over $25 billion in cryptocurrency spending. To help bring stablecoin-linked cards to more people in more places, the company is bringing new stablecoin-linked card programs.

Mastercard, meanwhile, emphasized the nascent nature of stablecoin as a means of payment, and downplayed the immediate threat of these disintermediating cards. Mastercard Chief Product Officer Jorn Lambert contended that 90% of the current stablecoin volume is for trading in other cryptocurrencies, such as bitcoin.

The recent passage of the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act of 2025) marks a significant milestone in the regulation of cryptocurrencies in the United States, particularly concerning stablecoins. Stablecoins are “digital dollars” (or euros/yen) that live on blockchain networks. Unlike volatile cryptocurrencies, their value is pegged 1:1 to real-world currencies, combining crypto’s speed with traditional money’s stability.Currently, issued mostly in US dollars, stablecoin circulation has doubled over the past 18 months but still facilitates only about $30 billion of transactions daily—less than 1 percent of global money flows.

The GENIUS legislation, aims to legitimize and regulate stablecoins—digital tokens pegged to the U.S. dollar—providing a framework that could stabilize and integrate these assets into the broader financial system. The implications of this piece of law for the payments industry are profound, and will have global ramifications on credit card companies like Visa and Mastercard, which dominate the world’s payments business.

However, a US Federal Reserve note on May 29, 2025 notes; ‘While stablecoins can offer lower transaction costs than existing real-time methods, it is not clear this advantage will persist. Transaction costs for Bitcoin and other cryptocurrencies have generally been higher than initially expected, as market players build in compliance and operational costs at scale. Early proponents of Bitcoin believed that cryptocurrency could be used for micropayments, but now the fees for a single transaction (typically $1-$2) well exceed the value of any micropayment.A similar erosion of touted cost savings is likely to occur with stablecoins.”

Companies like Visa are, however, rather optimistic over stablecoins. A note on its website says; “We’ve already seen how crypto, like stablecoins, and traditional payments methods are already working together, and at Visa, we see significant potential in stablecoins and the value they can provide for consumers. The company believes that a clear and strong underlying regulatory framework along with government support will pave the way for stablecoins and blockchain technology to make digital payments even better and drive innovation.”