Domestic Stablecoins May Boost Dollar-Backed Token Demand

Senior International Monetary Fund (IMF) official Dan Katz has stated that domestic stablecoins could inadvertently boost demand for dollar-backed tokens. In a speech at the University of Cape Town, Katz noted that once local and dollar stablecoins operate on the same blockchain infrastructure, users can convert between them through decentralized exchanges, liquidity pools or peer-to-peer swaps.

This shift could move foreign exchange activity away from banks and currency dealers, reducing the friction that gives authorities tools to monitor and manage capital flows. According to Katz, many users may favor dollar tokens because of their liquidity, network effects and acceptance across platforms and borders.

Katz also cautioned that the risks vary by country, citing examples where stablecoins may largely replace existing dollar holdings in highly dollarized economies or increase foreign-currency demand in countries with restricted access to dollars and weak economic frameworks.