Stablecoin Demand Linked to Local Currency Depreciation

The Bank of Korea (BOK) has released a study on stablecoin demand and its impact on local currencies. Researchers Kim Ji-hyun and Cho Sang-heum found that rising demand for dollar-pegged stablecoins, such as USDT and USDC, can push local currencies lower against the dollar.

The study tracked exchange rate premiums around Binance's fiat pair listings and found that when Binance added fiat-to-dollar-stablecoin trading for the euro and Turkish lira, the premium on USDT and USDC over actual dollar value fell 0.33 to 0.38 percentage points.

However, higher premiums then began moving with local depreciation, a link that barely existed before. The researchers noted that this mechanism runs through market makers, who sell local currency to buy dollars to balance their books when buyers purchase USDT or USDC.

The study also found that demand for stablecoins can weaken local currencies. A clear example of this is Brazil, where buyers can directly purchase stablecoins with the real on Binance. According to CoinDesk, a spike in Bitcoin search interest was tied to the real weakening roughly 0.12% against the dollar.

Market analysts say that this adds fresh evidence that dollar-pegged stablecoins may not stay neutral for FX markets once local-currency access is easy.