Stablecoin Demand Erodes Local Currencies, Study Warns
A Bank of Korea study suggests that dollar-backed stablecoins can weaken local currencies when investors buy them directly with fiat on global exchanges.
The researchers found that after Binance introduced direct trading between local currencies and dollar-pegged stablecoins, the demand for these tokens fell by 0.33 to 0.38 percentage points in some cases.
In Brazil, where investors can buy stablecoins directly with Brazilian Reais, the Real depreciated by 0.12% as stablecoin demand increased.
The study also noted that a different mechanism is at play in South Korea, where domestic traders exchange existing stablecoin holdings among themselves, rather than buying them directly with Won on Binance.
The researchers recommended that digital asset regulatory reforms be pursued alongside efforts to internationalize the Won and improve the structure of South Korea's foreign exchange market.