What To Know:
- IMF report says stablecoins can substitute local currencies and weaken central bank control, especially in high-inflation economies.
- Dollar-pegged tokens dominate supply, making cross-border and non-custodial use a risk to monetary sovereignty.
- Rapid adoption improves access to finance but may erode policy influence, prompting calls for legal and regulatory safeguards.
A new report by the International Monetary Fund signals that the expansion of stablecoin could weaken monetary authority in countries where digital dollars gain traction faster than national currencies. The risk sits at the intersection of financial inclusion and monetary control.
IMF : Stablecoins are Substitution for Currency, But Weakens Central Banks
The report warns that stablecoins have the capacity to substitute domestic money over time, especially in regions facing inflation or low banking penetration. The IMF describes this trend as currency substitution, a gradual shift in preference toward a foreign-denominated digital asset. Historically, holding US dollars required cash or traditional accounts. But today, a stablecoin wallet can achieve similar exposure with little friction.
The report highlights that stablecoins can enter economies through non-custodial wallets and cross-border channels without passing through regulated entities. Mobile access accelerates adoption, and foreign-denominated coins gain presence where local economic confidence is stressed. Dollar-backed tokens currently dominate the sector, which represents 97% of the $311 billion supply tracked by CoinGecko.
The IMF outlines a series of risks. If users move toward foreign digital currencies for savings and payments, domestic liquidity and interest rate control could weaken. A core function of a central bank is to influence credit, consumption, and pricing through currency management. When economic flows migrate into private digital units, those levers lose reach. Local currencies and central bank digital currency programs may struggle to compete once stablecoins become habitual payment rails.
The report also highlights redemption uncertainty. Major issuers do not guarantee conversion into underlying assets for all users under all conditions. During stress, holders may depend on secondary markets to exit positions. That scenario increases the chance of confidence shocks. Investors could rush to redeem or sell at a discount, forcing issuers to liquidate reserves quickly. Fire-sale scenarios pose downstream risks to token stability and broader asset markets.
Regions experiencing inflation or banking barriers often view stablecoins as tools of financial survival. Adoption in Africa, Latin America, the Middle East, and the Caribbean continues to grow. Stablecoins sit with FX deposits, which historically anchor monetary policy where trust in the domestic system is fragile. Rapid adoption in those environments is a reflection of need rather than speculation.
The IMF suggests policy direction for preserving monetary sovereignty. Governments could restrict recognition of digital assets as official currency or legal tender. Without that status, individuals and businesses would not be obligated to accept tokens for payment. Regulatory clarity, the report states, creates boundaries for private digital money while allowing innovation in payments and remittances.
The discussion extends beyond the IMF. In November, the European Central Bank issued its own warning regarding dollar-stablecoins and the pressure they place on domestic deposits. Large-scale stablecoin usage can drain retail funding from banks, shifting balance sheets and increasing reliance on more volatile capital sources.
There are voices arguing that stablecoins also offer macro-level benefits. When U.S. lawmakers approved stablecoin legislation earlier this year, Treasury Secretary Scott Bessent underscored the effect on government debt markets. Demand for tokens boosts demand for Treasuries, which reduces borrowing pressure and broadening dollar participation globally. Millions of users may enter digital finance through regulated stablecoin gateways.
The IMF draws a clear boundary through its report. Stablecoins widen access, accelerate digital money use, and respond to real economic pressures. At the same time, they tilt monetary power away from sovereign issuers. The direction of adoption, particularly in cross-border flows and self-custodied environments, will determine how much leverage central banks retain.
Also Read: UAE’s New Law Brings DeFi, Web3, Stablecoins Under Central Bank Oversight
