Explore stablecoin arrangements in cross-border payments from BIS Insights

Introduction

Cross-border payments have long been plagued by inefficiencies, including high costs, slow settlement times, limited transparency, and restricted access, particularly in emerging market and developing economies (EMDEs). These frictions hinder global trade, remittances, and financial inclusion, prompting ongoing efforts by international organizations such as the Bank for International Settlements (BIS) to explore innovative solutions. The BIS's Committee on Payments and Market Infrastructures (CPMI) report, "Considerations for the use of stablecoin arrangements in cross-border payments" (BIS, 2023a), provides a comprehensive analysis of how properly designed and regulated (PDR) stablecoin arrangements (SAs) might address these challenges while adhering to international standards.

Stablecoins, defined as cryptoassets aiming to maintain a stable value relative to a specified asset or basket of assets (BIS, 2023b), have emerged as a potential bridge between traditional finance and blockchain-based innovations. However, as highlighted in recent analyses, their adoption must balance opportunities with risks such as currency substitution and financial instability (Duffie, 2025). This article examines the key findings from the BIS report, supplemented by empirical insights from related studies on stablecoin flows and runs, to evaluate their role in the evolving payment ecosystem. We argue that while PDR SAs offer visionary potential for seamless, efficient cross-border transactions, their success hinges on robust regulatory frameworks and interoperability with existing systems. Drawing on our expertise in core banking solutions, we provide in-depth insights into how these arrangements can be integrated to enhance security and reduce settlement times without compromising stability.

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Defining Properly Designed and Regulated Stablecoin Arrangements

A PDR SA combines functions such as governance, issuance and stabilization, transfer, and user interaction to provide a stablecoin for payments (BIS, 2023a). The report emphasizes that PDR SAs must comply with international standards from bodies like the CPMI, International Organization of Securities Commissions (IOSCO), and Financial Action Task Force (FATF), including the Principles for Financial Market Infrastructures (PFMI) applied to stablecoins (CPMI-IOSCO, 2022). No existing SA fully meets these criteria, underscoring the conceptual nature of the analysis.

Key features for cross-border utility include the peg currency and on- and off-ramp infrastructure. The peg—typically a single fiat currency like the US dollar—affects adoption and risks, such as foreign exchange volatility for non-matching domestic currencies. On- and off-ramps, often via crypto exchanges or payment service providers (PSPs), enable conversion to sovereign currencies but introduce dependencies on local regulations and liquidity.

Insights from complementary research reveal that stablecoin definitions vary, with some emphasizing reserve-backed mechanisms for stability (Kosse et al., 2023). For instance, fiat-backed stablecoins like Tether dominate the market, holding 92% share by late 2022, yet exhibit price deviations, challenging true "stability" (Kosse et al., 2023). Our insight: In interbank systems, integrating PDR SAs requires tokenized reserves aligned with PFMI Principle 9, ensuring minimal credit and liquidity risks. This could enable atomic settlements, reducing counterparty exposure in cross-border rails—a core strength of our instant payment platforms.

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Opportunities for Enhancing Cross-Border Payments

PDR SAs could address G20-identified frictions (BIS, 2020) by leveraging distributed ledger technology (DLT) for efficiency gains. The BIS report outlines potential benefits:

• Cost Reduction: Fewer intermediaries in DLT-based chains lower fees, especially for low-value remittances. Empirical data show stablecoin flows negatively correlate with Bitcoin volatility, suggesting hedging utility amid inflation (Auer et al., 2025).
• Increased Speed: Near-instant transfers via blockchain rails bypass traditional correspondent banking delays.
• Expanded Options: Augmenting existing systems with stablecoins provides resilient backups, fostering competition.
• Improved Transparency: On-chain data enhances traceability, aiding compliance.

Recent developments affirm these opportunities; for example, stablecoins facilitate faster remittances in high-inflation corridors (BIS, 2025a). In-depth insight: From a technological architecture perspective, stablecoins defy gravity in cross-border flows, with USDT exhibiting weak ties to linguistic proximity, indicating blockchain's borderless nature (Auer et al., 2025). Our visionary view: Integrating stablecoins into multilateral platforms could achieve sub-second settlements, aligning with our cross-border interbank systems that already support real-time FX conversions, potentially reducing costs by 50% in EMDE corridors without DLT silos.

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Challenges and Risks in Stablecoin Adoption

Despite promise, the BIS report identifies hurdles, amplified by empirical evidence of instability.

• Organizational and Market Structure: Geographic dispersion of SA entities risks coordination failures, exacerbating ML/TF vulnerabilities (FATF, 2021).
• Inconsistent Access: Limited on/off-ramps in jurisdictions with crypto restrictions hinder usability.
• Regulatory Gaps: Fragmented oversight enables arbitrage, as seen in 2022-2023 depegging events (Ahmed et al., 2024).

Stablecoin runs, modeled as global games, reveal public information's role in triggering outflows, with redemptions spiking post-crashes like TerraUSD (Ahmed et al., 2024). Insight: Interoperability challenges mirror DLT's scalability issues; our analysis shows that without PFMI-aligned governance (CPMI-IOSCO, 2022), SAs could fragment liquidity, increasing systemic risks. For EMDEs, foreign-pegged stablecoins heighten dollarization, eroding monetary sovereignty—as evidenced by post-inflation stablecoin surges (BIS, 2025a). We envision hybrid architectures where our core systems mitigate this by enforcing tokenized central bank money settlements, ensuring "same risk, same regulation."

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Regulatory Frameworks and Oversight

The FSB's high-level recommendations mandate comprehensive risk management for global stablecoins (GSCs), emphasizing redemption at par and reserve quality (FSB, 2023). PFMI application requires SAs to minimize credit/liquidity risks, with guidance on finality in probabilistic settlements (CPMI-IOSCO, 2022).

Policy challenges include growth amid volatility; BIS notes stablecoins' recourse post-FX turmoil (BIS, 2025a). Insight: Balancing innovation with stability demands technology-neutral standards. Our interbank solutions exemplify this by enabling compliant stablecoin integration, reducing settlement risks via API-driven interoperability—addressing IMF concerns on dollarization (Rey, 2025).

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Implications for Monetary and Financial Stability

SAs could disrupt central bank functions, from payment oversight to monetary transmission. Large-scale adoption risks runs and capital volatility (Ahmed et al., 2024). In EMDEs, foreign-denominated SAs amplify substitution risks (Duffie, 2025).

Insight: Empirical flows show stablecoins' sensitivity to US policy, potentially distorting local markets (Auer et al., 2025). Vision: Central banks might counter via CBDC interlinks; our platforms support this hybrid, ensuring stablecoins enhance rather than undermine stability.

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Conclusion

PDR stablecoins represent a transformative force in cross-border payments, promising efficiency gains while demanding vigilant oversight to mitigate risks like instability and arbitrage. As IMF analyses suggest, their balancing act—faster payments versus dollarization—requires global coordination (Duffie, 2025). Future work should explore multi-currency pegs and interdependencies with CBDCs/multilateral platforms (BIS, 2023a), fostering a resilient ecosystem.

At our company, we pioneer instant payment solutions that seamlessly integrate stablecoins into secure interbank systems, empowering banks and central banks worldwide. Contact us to discover how our visionary technologies can future-proof your cross-border operations.