Dollar-Backed Stablecoins Push Local Currencies Lower: Bank of Korea Study

A Bank of Korea study has found that demand for dollar-backed stablecoins can push national currencies lower, once global exchanges allow investors to buy the tokens directly with fiat currency.

The researchers examined what happened when Binance introduced direct trading between currencies and dollar-pegged stablecoins like USDT and USDC. This allowed investors to buy stablecoins with local currency while professional market makers supplied the tokens, then had an incentive to sell the local currency and buy dollars in the FX market.

The study found that local stablecoin premiums fell by about 0.33 to 0.38 percentage points after Binance introduced fiat-stablecoin pairs. Stablecoins also tended to flow from Binance to local exchanges when local prices rose above Binance's.

In a separate test, the researchers used weekly data and found that a one-standard-deviation increase in Google searches for bitcoin was associated with a 0.118% depreciation of the Brazilian real and raised Brazil’s stablecoin premium by 0.109 percentage points.