IMF Warns: Local Stablecoins May Just Be Dollar Tokens in Disguise 🪞

Domestic-currency stablecoins designed to curb reliance on dollar-backed tokens could paradoxically funnel users toward digital dollars, a senior International Monetary Fund official said Friday. IMF First Deputy Managing Director Dan Katz told an audience at the University of Cape Town that once local and dollar stablecoins share blockchain infrastructure, users can swap between them through decentralized exchanges, liquidity pools or peer-to-peer transactions, eroding the friction authorities rely on to monitor and manage capital flows. "In this way, local-currency stablecoins might even accelerate the adoption of FX stablecoins," Katz said.

Katz cited South Africa as an example, noting that dollar-backed stablecoins have gained limited traction in the country while rand-linked tokens have attracted even less demand. While he said it was too early to draw firm conclusions, Katz suggested many users favor dollar tokens for their liquidity, network effects and cross-platform acceptance. The pattern, he argued, could move foreign exchange activity away from banks and currency dealers regardless of the regulatory intent behind domestic stablecoin launches.

The risks, Katz said, vary by country. In highly dollarized economies, stablecoins may largely substitute for existing dollar holdings, while in countries with restricted dollar access and weaker economic frameworks, the same instruments could intensify foreign-currency demand and amplify the risk of currency runs. He urged authorities to bring onramps, offramps and onchain exchange points within established regulatory frameworks. Related reporting has previously noted that dollar stablecoins could improve FX access but also magnify currency runs.