Domestic-currency stablecoins created to reduce reliance on dollar-backed tokens may unintentionally make it easier for users to move savings and payments into dollar-denominated digital assets, a senior IMF official warned.
IMF First Deputy Managing Director Dan Katz said that when local stablecoins and dollar stablecoins operate on the same blockchain infrastructure, conversions between them become simple through decentralized exchanges, liquidity pools or peer-to-peer swaps. That interoperability, he argued, can shift foreign-exchange activity away from banks and currency dealers and remove friction that authorities currently use to monitor and manage capital flows.
“In this way, local-currency stablecoins might even accelerate the adoption of FX stablecoins,” Katz said in a speech at the University of Cape Town. He highlighted South Africa as an example: dollar-backed stablecoins have gained some traction there, while rand-linked tokens have attracted even less demand.
Katz cautioned that user preferences often favor dollar tokens because of greater liquidity, stronger network effects and wider acceptance across platforms and borders. The effects of stablecoins will differ by country: in highly dollarized economies they may largely substitute existing dollar holdings, whereas in places with limited dollar access and weak economic frameworks they could increase demand for foreign currency.
To manage these risks, Katz urged regulators to bring onramps, offramps and on-chain exchange points within clear regulatory frameworks so authorities can retain tools to monitor flows and maintain stability.
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