IMF Warns Local Stablecoins Could Boost Dollar Stablecoin Demand in Emerging Markets

Highlights:

• IMF warns local stablecoins could make switching into dollar stablecoins easier across emerging markets for users.
• On-chain swaps may bypass traditional banks and foreign exchange dealers, making capital flows harder to monitor.
• IMF urges stronger regulation, better data, and international cooperation as stablecoin use expands across borders.

The International Monetary Fund (IMF) has warned that local-currency stablecoins could unintentionally increase demand for U.S. dollar stablecoins in emerging markets. The risk comes from blockchain-based swaps that can make it easier for users to move from domestic digital currencies into dollar-linked assets without relying on traditional banks or foreign exchange dealers.

Speaking on August 7, IMF First Deputy Managing Director Dan Katz said stablecoins could make payments cheaper and give people quicker access to foreign currencies. However, he also warned that the same technology could increase dollarization risks in countries with weak currencies, high inflation, or limited access to U.S. dollars.

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IMF Warns Local Stablecoins Could Become a Dollar On-Ramp

Some countries may support local-currency stablecoins as a way to keep digital payments tied to their domestic currency. However, Katz said the approach could have an unintended effect. Once a local stablecoin and a dollar stablecoin operate on the same blockchain, users can exchange them through decentralized exchanges, liquidity pools, or peer-to-peer swaps. These transactions can reduce the role of banks and regulated FX dealers, which governments currently use to monitor and manage capital flows.

Katz summarized the risk clearly: “In this way, local-currency stablecoins might even accelerate the adoption of FX stablecoins.” The IMF pointed to South Africa as an early example. Dollar-based stablecoins have gained limited use there, while rand-linked stablecoins have attracted even less demand. Katz said users may prefer dollar-linked assets because they have greater liquidity, stronger network effects, and wider acceptance across crypto platforms and cross-border transactions.

Stablecoin Growth Could Increase Dollarization Pressure

The IMF said stablecoins may make foreign currency easier to access through digital wallets. Nearly 99% of stablecoins are denominated in U.S. dollars, while the overall stablecoin market has remained around $300 billion over the past year. For emerging markets, wider access to dollar stablecoins could increase currency substitution. Households and businesses may move toward dollar-linked assets to protect savings from inflation or local currency weakness.

Stablecoins could also speed up this shift. Unlike physical dollars or foreign bank accounts, digital stablecoins can be accessed through smartphones and crypto wallets. As a result, money can move across borders faster and outside some traditional financial channels. Katz said moving activity from regulated intermediaries to on-chain markets can make capital flows “Harder to monitor, harder to control.”

IMF Calls for Stronger Stablecoin Regulation and Data

The IMF said governments should strengthen economic policies, improve digital asset data, and update rules for crypto exchanges, custodians, payment platforms, and on- and off-ramp providers.

It also called for policy responses that match each country’s situation. In highly dollarized economies, stablecoins may mainly replace existing dollar holdings. However, in countries where access to dollars is restricted, stablecoins could create new demand for foreign currency and increase pressure on the local financial system.

The IMF also said countries need to work together as stablecoins become more widely used across borders. Since rules differ from one country to another, closer cooperation could help reduce risks without holding back financial innovation.