Bank of Korea Says Stablecoin Demand Can Weaken Local Currencies

Dollar-backed stablecoins give crypto investors access to dollar-like assets outside conventional banking channels, but their growth may also accelerate informal dollarization in emerging markets. When users exchange domestic currency for stablecoins, the resulting demand for dollar-linked assets can add to capital-flow and foreign-exchange pressures, raising concerns for central banks responsible for currency and financial stability.

A Bank of Korea study using the Brazilian real as an example found that buying demand for dollar-backed stablecoins on Binance was significantly associated with weakness in the local currency. The research highlighted market makers’ position-balancing activity as a potential transmission channel, suggesting the exchange-rate impact can extend beyond investors’ initial purchases and be amplified through trading-platform liquidity and hedging flows.