Dollar Stablecoins Erode Confidence in Local Currencies: Bank of Korea Study

A new study by the Bank of Korea found that dollar-backed stablecoins can put pressure on local currencies when exchanges allow direct fiat purchases. Researchers analyzed 12 currencies on Binance, including Brazil's real, and tracked trading involving USDT and USDC.

The findings linked dollar-stablecoin demand with foreign-exchange markets. When demand rises, market makers can sell local currencies to buy dollars, adding pressure to exchange rates. This activity can also lead to lower premiums for stablecoins on local exchanges, around 0.33 to 0.38 percentage points.

However, the study found weaker evidence of direct pressure on South Korea's won due to a lack of direct won-stablecoin pairs on Binance. The Bank of Korea suggested that policymakers should consider increasing international use of the won and improving FX liquidity.

The report noted that as corporate and foreign participation in stablecoins grows, these links could deepen. Additionally, 21 financial institutions plan to launch a dollar-pegged stablecoin in early 2027, with tokens linked to other G7 currencies also in development.