Dollar Stablecoins Could Improve FX Access but Amplify Currency Runs, IMF Paper Says

Some governments view stablecoins denominated in local currencies as a way to modernize payments while limiting dollarization and preserving monetary sovereignty. The International Monetary Fund, however, says that strategy could backfire if domestic and dollar-backed tokens operate on the same blockchain infrastructure, where shared liquidity and round-the-clock trading can make switching currencies substantially easier than in the traditional financial system.

An IMF first deputy managing director recently warned that users could exchange local-currency stablecoins directly for dollar-backed tokens through decentralized exchanges. That could shift foreign-exchange activity away from banks and other regulated intermediaries, reduce frictions associated with capital oversight and ultimately accelerate adoption of dollar stablecoins. The IMF cited no projected increase in demand, transaction value or specific implementation date in the reports, framing the concern as a potential consequence of interoperable blockchain markets.

Dollar-backed stablecoins give households and companies in emerging markets a way to hold and transfer U.S. dollar exposure outside conventional banking channels. The Bank for International Settlements says the resulting “digital dollarization” could reduce demand for local currencies, weaken monetary sovereignty and complicate efforts by central banks to preserve financial stability.

The BIS’s latest research found that flows involving U.S. dollar stablecoins are largely insensitive to capital controls, allowing assets to move beyond established banking and foreign-exchange safeguards. The study did not disclose a single aggregate dollar amount or a specific implementation date, but warned that traditional market rules may struggle to contain these digital flows and the pressure they place on emerging-market policy frameworks.