IMF warns local stablecoins could speed dollar adoption

Domestic stablecoins designed to strengthen the role of national currencies could have an unintended effect: making it easier for users to move into digital dollars. 

International Monetary Fund First Deputy Managing Director Dan Katz raised the concern on Aug. 7 during a speech at the University of Cape Town, as regulators weigh how stablecoins could reshape payments and foreign currency demand in emerging markets.

Katz said local currency and dollar stablecoins operating on the same blockchain infrastructure can make foreign exchange conversion easier. Users can potentially swap between them through decentralized exchanges, liquidity pools or peer to peer transactions instead of relying exclusively on banks and conventional currency dealers. In that environment, local tokens “might even accelerate the adoption of FX stablecoins,” he said. The IMF has not presented that outcome as certain.

Dollar stablecoins already hold a strong network advantage

The IMF’s assessment starts with a stablecoin market that remains overwhelmingly linked to the U.S. dollar. Katz said stablecoin market capitalization has remained around $300 billion over the past year after nearly tripling between 2021 and 2025. Nearly 99% of stablecoins are denominated in dollars.

That dominance gives dollar backed tokens stronger liquidity and broader acceptance across exchanges, payment platforms and international markets. Domestic currency stablecoins have to compete with those existing network effects even when regulators or companies introduce them as alternatives.

South Africa offers an early example. Katz said dollar stablecoins have so far gained only limited traction in the country, yet rand denominated stablecoins have attracted even less demand. He cautioned that it is “too early to draw firm conclusions” about whether that pattern will persist.

The South African Reserve Bank’s Financial Stability Review has also documented growing activity involving dollar pegged tokens. Trading volumes for U.S. dollar stablecoins on domestic platforms rose from less than 4 billion rand in 2022 to almost 80 billion rand during the first ten months of 2025.

Meanwhile, as previously reported, South African authorities have been reassessing the country’s digital money framework while placing greater emphasis on wholesale central bank digital currency use cases and regulation of private digital assets.

Domestic stablecoins could move more FX activity onchain

The IMF’s concern centers on the ease of moving between currencies once different stablecoins share blockchain infrastructure. A user holding a local currency token may no longer need to approach a bank or traditional foreign exchange provider to obtain a dollar denominated asset.

Instead, decentralized exchanges and liquidity pools can provide direct trading pairs between domestic and dollar stablecoins. Peer to peer transactions can offer another route. Katz argued that this could shift some foreign exchange activity away from financial institutions that traditionally act as regulatory checkpoints.

That matters because banks and currency dealers can be required to report transactions, enforce foreign exchange restrictions and apply capital flow controls. Onchain transactions using self-custody wallets can be harder for authorities to monitor in the same way.

Research from the Bank for International Settlements has raised similar questions. A study examining four dollar stablecoins and 27 fiat currencies found that more than 70% of cumulative net fiat inflows into the tokens came from non-dollar currencies. Researchers also found links between stablecoin demand, currency depreciation and pricing differences between onchain and traditional foreign exchange markets.

BIS research found broadly similar stablecoin inflows in countries with and without restrictions on cross-border stablecoin use. Researchers said self-hosted wallets and the borderless nature of blockchain transactions could reduce the effectiveness of some conventional controls.

Dollarization risks will differ across emerging markets

Katz stressed that stablecoins will not affect every country in the same way. In economies where residents already hold substantial amounts of dollars, stablecoins may mainly replace existing foreign currency deposits or physical cash with a digital alternative.

Under that scenario, greater stablecoin use may change how people hold dollars without materially increasing total foreign currency demand.

The situation could be different in countries where dollar access is restricted or confidence in the domestic currency is weaker. The IMF said stablecoins could provide an additional route into foreign currencies in economies with weaker macroeconomic frameworks or pent up demand for dollars.

During periods of currency depreciation or high inflation, easier access to digital dollars could therefore increase demand for foreign currency assets. However, Katz presented this as a risk that depends on domestic economic conditions rather than an inevitable outcome.

The BIS 2026 annual economic report also warned that foreign currency stablecoins can become accessible substitutes for domestic money in emerging economies. Such access could make capital flows larger or more volatile when investors lose confidence in local currencies.

Regulators may focus on stablecoin conversion gateways

Despite those concerns, the IMF is not calling for countries to impose a universal ban on foreign stablecoins. Instead, Katz said authorities should apply policies according to the risks present in each economy.

One priority is bringing stablecoin onramps and offramps within regulatory frameworks. Exchanges, custodians and payment companies that convert between fiat money and digital assets remain points where authorities can apply customer identification, transaction monitoring and reporting requirements.

The IMF also wants attention placed on onchain exchange points. Where domestic and dollar stablecoins can be freely exchanged, regulators may need to consider whether existing foreign exchange and capital flow rules remain effective.

Cross-border cooperation will also matter because activity can migrate to platforms outside a user’s home jurisdiction. Self-custody makes the issue more complicated because transactions can take place without a conventional intermediary controlling the wallet.

At the same time, Katz acknowledged that stablecoins can reduce payment costs. He cited forthcoming IMF work indicating that stablecoin transfers may cost less than the roughly 6.5% average global remittance cost, although conversion charges and exchange rates can reduce those savings.

Stablecoins have increasingly been used as settlement infrastructure for payments and cross-border transfers as financial institutions and payment companies explore blockchain based rails.

For policymakers, the next stage will involve improving data collection and determining where stablecoin activity falls within existing financial rules. Katz said the IMF is working through the G20 Data Gaps Initiative to improve information on digital asset flows while helping member countries adapt their regulatory frameworks.

No binding international rule accompanied the Aug. 7 speech. For now, the IMF’s message is that domestic stablecoins should not automatically be viewed as a shield against digital dollarization. If local tokens make conversion easier, they may instead provide another bridge into dollar backed assets.