Stablecoins are emerging as an alternative to traditional cross-border payment systems, according to a working paper by the Bank for International Settlements (BIS) titled Competing Rails for Cross-Border Payments: Banks, Fintechs, and Stablecoins.
The paper, written by researchers Wenxin Du, Catherine Huang, and David Scharfstein, examines how blockchain networks such as Ethereum, Solana, and Tron enable international transfers without relying on correspondent banks or SWIFT messaging.
It looks at the economics of stablecoin-based payments, including the “stablecoin sandwich,” in which money is converted from fiat currency into a stablecoin for transfer and then exchanged back into local currency at the destination.
The researchers cite Félix Pago’s US-Mexico remittance service as an example of how the model works, using stablecoins to transfer value between currencies while reducing reliance on traditional payment intermediaries.
Stablecoin-based foreign exchange can closely track wholesale market rates for major currencies, the paper found, while blockchain transaction fees are generally negligible relative to the amount transferred.
However, stablecoins do not eliminate all the costs of cross-border payments.
Users may still pay exchange commissions, withdrawal charges and other fees when converting between traditional currencies and digital tokens.
The systems also continue to rely on intermediaries, including centralised exchanges and service providers that handle currency conversions.
Rather than removing intermediaries altogether, stablecoins can shift some of their functions away from correspondent banks.
Liquidity remains another challenge. Trading between US dollar stablecoins and the euro averaged about $200 million a day across centralised and decentralised exchanges, compared with roughly $2.7 trillion in daily foreign exchange turnover involving the euro, the researchers estimated.
The gap could limit the size of transactions that stablecoin markets can handle efficiently and make pricing less reliable for larger transfers.
Stablecoins could offer particular advantages in emerging markets where capital controls and fragmented foreign exchange markets create gaps between official exchange rates and those available through alternative channels.
However, the researchers cautioned that such pricing advantages may reflect market distortions rather than greater technological efficiency.
Competition among banks, fintechs and stablecoin-based payment providers will therefore depend on more than blockchain technology, the paper concluded.
Market liquidity, regulation and confidence in intermediaries will also shape how these systems develop.
The BIS paper followed an IMF study that showed stablecoins could put significant pressure on traditional payment companies as their use expands with financial markets.
The study said this suggests that the passage of new U.S. rules for digital assets could reduce the value of incumbent payment firms by about $300 billion, an IMF study said.
The study, “Stablecoins and the Future of Payments: Evidence from Financial Markets,” examined stock-market reactions to key votes on the GENIUS Act, which establishes a regulatory framework for payment stablecoins.
