Local Stablecoins Threaten Dollarization and Central Bank Control

The International Monetary Fund (IMF) has warned that local stablecoins could accelerate dollarization, making it easier for users to move between currencies. According to Dan Katz, IMF First Deputy Managing Director, this could be a problem for countries already concerned about dollarization.

The concern is that local-currency stablecoins could make it easier for users to convert their local currency into dollars through the traditional financial system. This would shift part of the currency conversion away from the infrastructure through which it traditionally took place.

A new domestic stablecoin would also be competing in a market that is already overwhelmingly dollar-based, with close to 99% of stablecoins denominated in US dollars. The IMF notes that this gives dollar tokens a major liquidity advantage, making it difficult for local stablecoins to compete.

The effects of local stablecoins may extend beyond crypto trading and affect conventional foreign-exchange markets. A 2026 IMF Working Paper found measurable links between stablecoin flows and conventional foreign-exchange markets, with the authors estimating that a 1% exogenous increase in stablecoin net inflows widened the difference between stablecoin and spot FX prices by around 40 basis points.

The IMF warns that economic conditions will shape the final impact of local stablecoins. In countries with low inflation, credible monetary policy, and efficient domestic payments, households may have fewer reasons to move into dollars. However, in economies already dealing with depreciation, inflation, or shortages of foreign currency, demand for dollars may exist before any local stablecoin appears.