Local Stablecoins Could Fuel Dollarization, Warns IMF
The International Monetary Fund (IMF) has warned that local stablecoins could accelerate the adoption of dollar-denominated tokens, making it easier for users to move into digital dollars. According to Dan Katz, First Deputy Managing Director at the IMF, domestic stablecoins designed to strengthen national currencies may have an unintended effect: increasing the use of foreign currency.
Katz noted that nearly 99% of stablecoins remain dollar-denominated, giving them a strong network advantage and broader acceptance across exchanges and payment platforms. This dominance makes it harder for local currency stablecoins to compete, as seen in South Africa where rand-denominated tokens have attracted weaker demand compared to dollar-backed stablecoins.
The IMF is concerned that the ease of moving between currencies on shared blockchain infrastructure could shift some foreign exchange activity away from traditional banks and financial institutions. This could reduce authorities' ability to monitor transactions and enforce capital flow controls, as onchain exchanges and liquidity pools provide direct trading pairs between domestic and dollar stablecoins.
Katz emphasized that dollarization risks will differ across emerging markets, with stablecoins potentially providing an additional route into foreign currencies in economies with weaker macroeconomic frameworks or pent-up demand for dollars. Regulators may focus on bringing stablecoin conversion gateways within regulatory frameworks, including exchanges, custodians, and payment companies.
The IMF is working through the G20 Data Gaps Initiative to improve information on digital asset flows, as policymakers seek to determine where stablecoin activity falls within existing financial rules.