Stablecoins could speed up dollarisation, IMF official warns

The growing use of stablecoins could make it much easier for people and businesses in emerging markets to access foreign currencies, potentially accelerating dollarisation and creating new challenges for policymakers, according to IMF First Deputy Managing Director Dan Katz. Speaking at the University of Cape Town, Katz said stablecoins could bring major benefits, including cheaper payments and greater competition, but warned that their effects would vary considerably depending on countries’ economic conditions, financial systems and existing levels of dollarisation. “Stablecoins remain modest in size relative to the financial system,” Katz said, noting that their market capitalisation nearly tripled between 2021 and 2025 before levelling off at around $300 billion over the past year. Almost 99 per cent of stablecoins are denominated in US dollars, with their reserves mainly held in short-term US Treasury bills and reverse repos, although some issuers use less liquid and riskier assets. Katz said some estimates put total stablecoin transaction volumes above $30 trillion in 2025, including $6.1 trillion in cross-border transactions, but much of this activity remains within the crypto ecosystem and is driven by automated trading. The Bank for International Settlements estimates that only around $390 billion of 2025 stablecoin flows were related to payments, against an estimated global cross-border payments market of about $1 quadrillion a year. Nevertheless, Katz said stablecoins should be viewed as part of a much broader move towards tokenisation, with financial institutions experimenting with tokenised deposits, money market funds and securities, while central banks explore tokenised forms of money. He said tokenisation could reduce reconciliation costs, allow transactions to be programmed and enable transactions to settle simultaneously, while potentially allowing some emerging markets to bypass outdated financial infrastructure. Stablecoins could also reduce the cost of remittances, with forthcoming IMF research suggesting that their end-user costs can be significantly below the current global average remittance cost of 6.5 per cent. However, Katz cautioned that savings vary between payment routes because fees for converting money into and out of stablecoins can be higher, while differences between stablecoin and traditional foreign exchange rates can either raise or lower the overall cost. He also suggested that artificial intelligence could accelerate stablecoin adoption, as their programmability and settlement capabilities make them suited to AI agents conducting transactions on behalf of people and businesses. The biggest concern for emerging markets is the ease with which stablecoins could provide access to foreign currencies, particularly US dollars. Katz said remittance recipients could eventually receive dollar-denominated digital assets directly in their wallets rather than domestic currency, with smartphones and messaging applications potentially making foreign currency access much easier. That could intensify an old economic problem, as emerging markets have historically experienced dollarisation when inflation, exchange-rate volatility, weak institutions and poor policy credibility encourage households and businesses to hold dollars. “Stablecoins could spread much faster,” Katz said, contrasting them with previous waves of currency substitution that developed gradually through physical cash, domestic dollar deposits and offshore accounts. He warned that easier access could also make capital flows more volatile, as stablecoins may allow users to bypass capital flow management measures applied through regulated banks and foreign exchange dealers. “In periods of stress, that could amplify outflows, creating pressure on exchange rates and, in some cases, triggering financial instability,” Katz said. The risks are not identical across all emerging markets, however. In economies that are already heavily dollarised, stablecoins may simply provide a cheaper and more convenient digital alternative to existing dollar holdings, with relatively limited additional demand for foreign currency. Where stablecoins replace physical dollars, Katz said the macroeconomic risks could be limited, while greater convenience could even help bring parts of the informal economy into the formal financial system. A greater concern arises when people shift money from foreign currency deposits into stablecoins, because the reserves backing those digital assets are often invested abroad, potentially reducing domestic banks’ funding for foreign currency lending. In economies with limited official access to dollars, meanwhile, stablecoins could create significant additional demand for foreign currency, particularly where households already have a strong incentive to protect their savings from inflation or currency depreciation. Katz said the risk would also depend on how stablecoins are acquired, with domestic banks and other regulated intermediaries easier for authorities to supervise than offshore providers and unhosted digital wallets. Local-currency stablecoins may not necessarily solve the problem, he warned, because putting local and dollar stablecoins on the same blockchain could make conversion between them easier and potentially reduce the role of traditional financial intermediaries. “The friction created by traditional financial intermediaries that currently gives authorities policy levers to manage capital flows could disappear,” Katz said. He urged emerging-market policymakers to focus first on sound monetary and fiscal policies, strong institutions and effective domestic payment systems, which can reduce demand for foreign-currency stablecoins. He also called for better data, saying authorities cannot properly manage capital flows without knowing the size and direction of stablecoin transactions. Katz pointed to South Africa, where the central bank has gathered information directly from major crypto exchanges and found that households account for a significant share of holdings, while also discovering how much activity remains outside the official statistical system. He said regulation should cover crypto exchanges, conversion services, custodians and payment platforms, while policymakers should tailor their response to the way stablecoins are being adopted rather than applying a single approach to every country. International cooperation will also be essential because stablecoins operate across borders while regulation remains largely national, creating the risk that activity will move towards jurisdictions with weaker oversight or into unhosted wallets. The IMF is supporting countries through economic surveillance, research, regulatory assistance and efforts under the G20 Data Gaps Initiative to improve reporting on digital assets. Katz stressed that stablecoins may ultimately fail to become a major part of the global financial system if traditional financial institutions adopt competing technologies. “Stablecoins could become victims of their own success,” Katz said. The ultimate objective, he argued, should be to ensure that households and businesses benefit from lower costs and greater competition, while innovation does not undermine monetary or financial stability.