Stablecoin Demand Siphons Local Currencies: Bank of Korea Study
A study by the Bank of Korea has found that demand for dollar-backed stablecoins can put downward pressure on local currencies when a global exchange introduces direct trading pairs between those stablecoins and local fiat currencies.
The researchers examined what happened to exchange rates after a major global exchange introduced fiat-stablecoin trading pairs for specific currencies, specifically Tether (USDT) and USD Coin (USDC).
They found that when a fiat-stablecoin pair goes live on a global exchange, market makers step in as counterparties to investors buying stablecoins with their local currency. After supplying the stablecoins, those market makers hold the local currency and then sell it in the FX market to restore their dollar positions.
The study used weekly data and measured how a one-standard-deviation increase in Google searches for Bitcoin (BTC) affected both markets. In Brazil, that demand signal was linked to a 0.118% depreciation of the real and a 0.109 percentage point increase in the local stablecoin premium.