IMF warns local stablecoins could deepen dollarisation risk

The International Monetary Fund has warned that stablecoins issued in local currencies, often pitched as a defence against dollarisation, could end up accelerating it instead.

Dan Katz, the IMF’s First Deputy Managing Director, made the warning in a speech at the University of Cape Town on August 7, titled “Stablecoins: Promise, Risks, and Policy Choices for Emerging Markets.”

Katz said the growing shift toward tokenisation of financial assets, from stablecoins to tokenised deposits, is raising new questions for policymakers, particularly around how easily people can now access foreign currency.

He said users are gravitating toward dollar-pegged stablecoins because of their superior liquidity, strong network effects and seamless cross-border acceptance. Stablecoin market capitalisation has held around $300 billion over the past year, after nearly tripling between 2021 and 2025, with almost 99 percent of all stablecoins in circulation denominated in dollars.

That dominance gives dollar-backed tokens a structural advantage that local-currency alternatives struggle to match, even when governments or private issuers introduce them specifically to cut reliance on the dollar, Katz said.

He pointed to South Africa as an early example. Dollar-pegged stablecoins have so far gained only limited traction in the country, but rand-denominated stablecoins have attracted even less demand, he said, cautioning that it is too early to draw firm conclusions on whether the gap will persist.

Data from the South African Reserve Bank shows trading volumes for US dollar stablecoins on domestic platforms rising from under R4 billion in 2022 to almost R80 billion in the first ten months of 2025.

Katz explained that when local-currency and dollar stablecoins run on the same blockchain infrastructure, users can convert between them directly through decentralised exchanges, liquidity pools or peer-to-peer transactions, bypassing banks and licensed currency dealers. In that environment, he said, local tokens “might even accelerate the adoption of FX stablecoins.”

That matters for regulators because banks and currency dealers are typically required to report transactions, enforce foreign exchange restrictions and apply capital-flow controls, while onchain transactions using self-custody wallets are harder to monitor in the same way.

Research from the Bank for International Settlements, examining several dollar stablecoins against 27 fiat currencies, found that more than 70 percent of cumulative net inflows into the tokens came from non-dollar currencies.

Katz said the risk will not play out the same way across all emerging markets. In economies where residents already hold substantial dollar balances, wider stablecoin use may simply digitise existing foreign-currency holdings without materially increasing total dollar demand.

In countries where dollar access is restricted or confidence in the local currency is weaker, however, stablecoins could open an additional route into foreign currency, particularly during periods of depreciation or high inflation.

Despite the risks, the IMF is not calling for a blanket ban on foreign stablecoins. Katz said authorities should calibrate their response to the specific risks present in each economy, prioritising regulation of the onramps, offramps and onchain exchange points where fiat currency is converted into digital assets, since these remain the points where customer identification, transaction monitoring and reporting requirements can still be applied.

He urged central banks not to wait for “perfect” regulation before acting. “Data collection should not wait for perfect regulation,” Katz told the audience, adding that the IMF is working through the G20 Data Gaps Initiative to improve information on digital asset flows and help member countries adapt their regulatory frameworks. He noted that artificial intelligence could also accelerate stablecoin uptake going forward.

Katz acknowledged stablecoins carry genuine benefits alongside the risks, citing forthcoming IMF work suggesting stablecoin transfers could cost less than the roughly 6.5 percent global average for remittances, though conversion charges and exchange-rate spreads can erode some of those savings. He said the tokens offer real utility for remittances, trade settlement and financial inclusion in regions where conventional banking infrastructure is unreliable.

No binding international rule accompanied the speech. The IMF’s position, as set out by Katz, is that domestic stablecoins should not automatically be treated as a shield against digital dollarisation, and that if local tokens make currency conversion easier, they may instead function as another bridge into dollar-denominated assets.

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