For the second time in three weeks the Bank for International Settlements (BIS) has published a highly critical paper about stablecoins. The previous one outlined how stablecoins are “unsound money” and the latest is entitled “Stablecoin growth – policy challenges and approaches”. The focus is on the challenges, with only hints about approaches and the need for a “more restrictive regime”. This latest paper focuses on three key policy challenges. First are concerns about anti money laundering and the borderless nature of stablecoins. Here the authors fail to fully acknowledge the tremendous progress that has already been made in this regard, with many crypto exchanges now falling into line. “While stablecoin issuers and exchanges can freeze balances, and occasionally do so at the request of public authorities for high-profile cases of financial crime, employing a request-based approach for billions of transactions with pseudonymous addresses would quickly overwhelm the capacity of those authorities,” the authors wrote. There’s no mention of the many services that already exist to monitor transactions, such as Chainalysis and TRM Labs. AI might come in handy as well. The next issue is monetary sovereignty, which is a genuinely tricky one. The authors note that stablecoins unsurprisingly become popular during bouts of high inflation or exchange rate volatility. Many individuals don’t see why they should pay the price of what is sometimes (not always) economic mismanagement. At the same time, by using stablecoins they exacerbate the problem and the less tech savvy can be impacted even more. There is a real risk of dollarization. While that is problematic on its own in many countries, we’d add that the timing is also not good – with the dollar less likely to be as reliably strong in the future. The third issue is the use of Treasury bills to back stablecoins, impacting the markets and potentially interest rates. That’s especially the case if there are sudden shifts in and out of stablecoins. In terms of the policy approaches, there were only hints. The authors conclude that “same risks, same regulations” doesn’t apply because of the cross border nature of stablecoins combined with localized regulations.