Domestic Stablecoins May Boost Dollar-Backed Token Demand

A senior International Monetary Fund (IMF) official believes that domestic stablecoins could inadvertently boost demand for dollar-backed tokens, rather than replace them. Dan Katz, First Deputy Managing Director of the IMF, made this observation during a speech at the University of Cape Town.

Katz pointed out 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 could shift foreign exchange activity away from banks and currency dealers, reducing friction for authorities to monitor and manage capital flows.

The official noted that in South Africa, dollar-backed stablecoins have gained limited traction but rand-linked tokens have attracted even less demand. While the risks vary by country, Katz warned that stablecoins may increase foreign-currency demand in countries where access to dollars is restricted and economic frameworks are weak.