Stablecoins could become a systemic risk to global financial stability, central banks warn
Asset-backed digital currencies are set to enter widespread usage and pose
Two major central banks have warned that crypto could pose structural risks to the financial system as stablecoins move into systemic use.
Governments and financial authorities around the world are laying the legal foundations for stablecoins to enter the mainstream economy as widely accepted forms of digital money.
Regulators describe this as “systemic use” - which also marks the point at which a payment system or financial asset becomes so widely used that its failure could threaten financial stability.
The United States, European Union, United Kingdom, South Korea, and other major economies are all laying the legal foundations for this transformation, which promises faster payments, greater competition, and lower transaction costs.
But as stablecoins become more deeply embedded in the financial system, they also pose growing risks to the wider economy.
For example, a loss of confidence could trigger destabilizing runs, forcing issuers to rapidly sell reserve assets such as government bonds to meet redemptions.
We laughed at Bitconnect (see below) and watched with horror as previous crypto disasters wiped out billions of dollars. Yet these crashes only impacted the crypto economy.
The collapse of a systemic stablecoin would be significantly more impactful - meaning central banks are already preparing for the risk ahead.
Stablecoins join the financial system
Those risks will only be theoretical for so long - because around the world, central banks are already redesigning financial regulation to prepare for the systemic use of stablecoins.
Last week, the UK unveiled forward-looking proposals governing "sterling-denominated systemics stablecoins", setting out how they could be integrated into payment networks while protecting financial stability.
The Bank of England’s draft rules explicitly acknowledge the financial stability risks posed by systemic stablecoins while establishing a framework for their growth.
The proposals would allow stablecoin issuers to hold up to 70% of their reserves in short-term UK government debt, up from 60%, with the remainder held as central bank deposits to ensure rapid redemption.
READ MORE: Five Eyes orders "whole of society" response to AI security crisis set to erupt in "months"
The Bank has also scrapped proposed holding limits in favor of a temporary £40 billion issuance cap for each systemic stablecoin, arguing the approach better protects bank lending while allowing households and businesses to use the assets more freely.
Commercial bank deposits and other sensitive assets will not be permitted as backing assets for systemic stablecoins because of the “financial and operational risks and the contagion risks this would create between stablecoins and the wider financial sector, including wider systemically important institutions.”
The Bank of England also plans to provide a backstop liquidity facility, allowing stablecoin issuers to borrow central bank money against UK government bonds during periods of market stress. In effect, it is creating a lender-of-last-resort mechanism designed to prevent runs, maintain confidence that stablecoins can always be redeemed at face value and protect financial stability.
Infectious connections: The contagion risks of crypto
Meanwhile, the Bank of Korea warned that as more connections form between stock markets, the banking system and the crypto ecosystem, the potential for shocks to spread from crypto into the wider economy increases.
In its Financial Stability Report for the First Half of 2026, the Bank of Korea said: “The global cryptocurrency market is exerting greater influence on traditional financial markets due to structural changes such as the diversification of investors.”
According to the central bank, the forces driving crypto markets have fundamentally changed. Instead of being driven primarily by global liquidity and Bitcoin’s four-year halving cycle, which cuts mining rewards in half, prices are now increasingly influenced by institutional finance through U.S. spot Bitcoin ETFs and growing leverage in futures markets.
READ MORE: Chinese IoT ‘kill switches’ could disable Britain’s critical systems and infrastructure, MPs warn
It said that “during periods of heightened volatility, such as the COVID-19 pandemic in 2020 and the global interest rate hikes in 2022, the synchronisation between cryptocurrencies and the stock market increased,” adding that “since the introduction of U.S. spot ETFs in 2024, it has remained at a higher level than in the past.”
The report also warned that crypto is becoming increasingly intertwined with mainstream finance. As stablecoin issuers invest reserve assets in short-term Treasury bonds, they become participants in markets that underpin the wider financial system.
For now, the Bank of Korea believes the risks to its own financial system remain contained because “trading of cryptocurrency spot and futures ETFs is not yet permitted in Korea.” However, it added that “the relationship between Bitcoin and the KOSPI has been at a relatively high level recently,” indicating that the links between crypto and traditional markets are already strengthening.
Systemic stablecoins around the world
The UK and South Korea are not alone in preparing for systemic stablecoins. Around the world, policymakers are trying to strike the same balance: enabling stablecoins to become part of the financial system while preventing them from becoming a source of systemic instability.
The Trump administration has already signed the GENIUS Act into law, creating the country’s first federal regulatory framework for payment stablecoins and giving banks, financial firms and technology companies a clearer legal foundation to issue and use the assets.
Supporters argue the framework will strengthen the global role of the dollar and accelerate innovation in digital payments. But it will also deepen the ties between crypto markets, the banking system and U.S. Treasury markets.
READ MORE: Bureaucracy-as-a-service: The grim, grey future of AI government
The European Union was also one of the first major jurisdictions to regulate stablecoins through its Markets in Crypto-Assets framework. But even as it provides legal certainty for the sector, the European Central Bank has become increasingly vocal about the systemic risks.
It has warned that widespread stablecoin adoption could drain deposits from commercial banks, weaken the transmission of monetary policy and create new channels through which financial stress could spread across the wider economy.
That is the trade-off facing policymakers around the world. Stablecoins may deliver faster payments, greater competition and new forms of digital money.
But integrating them into the financial system also means importing crypto’s risks into the institutions that underpin the wider economy. The more deeply those connections become embedded in the financial system, the harder it will be to ensure that the next crypto crisis remains confined to the blockchain.
