Why Dollar Stablecoins Could Deepen Dollarisation in Emerging Markets

Dollar stablecoins offer a compelling payments proposition: faster transfers, lower costs and more competition. But IMF First Deputy Managing Director Dan Katz warned that the same digital rails could make it much easier for households and businesses in emerging markets to switch from local money into “digital dollars.” The danger is greatest where monetary policy lacks credibility, access to foreign currency is limited and people already rely heavily on dollars. 8

Katz’s central warning

Nearly 99% of stablecoins are denominated in U.S. dollars, according to figures cited by Katz. That concentration gives dollar tokens a powerful network advantage: users can hold a digital asset that is designed to maintain a dollar peg and can move across borders and blockchain-based services. 18

For countries with weak economic institutions or low confidence in the domestic currency, easier access to dollar tokens could speed up currency substitution. As more transactions and savings move into foreign-currency instruments, domestic monetary policy may have less influence over economic activity. The concern is not that every stablecoin transaction will destabilise an economy, but that widespread access could amplify existing vulnerabilities. 8

Why a local-currency stablecoin might not solve the problem

Issuing a stablecoin backed by the local currency may appear to be a way to protect monetary sovereignty. Katz’s warning is that the outcome depends on how the tokens interact.

If local-currency and dollar-denominated stablecoins operate on the same blockchain infrastructure, users may be able to swap between them through decentralised exchanges, liquidity pools or peer-to-peer markets. That could reduce the friction of converting local money into a dollar token and, in some circumstances, increase demand for foreign-currency stablecoins rather than contain it. 24

The implication is important for policymakers: the relevant question is not only which currency backs a token. It is also how easily users can enter the system, exchange assets and redeem them through regulated or unregulated channels.

The crisis risk: faster capital outflows

Traditional foreign-currency transactions often pass through banks, licensed dealers and other supervised intermediaries. Stablecoins can create additional digital routes between users, platforms and jurisdictions. Katz and the IMF warned that these routes could make capital-flow management measures and foreign-exchange controls less effective. 8

During a period of financial stress, that reduced friction could allow capital to leave more quickly, increasing pressure on the exchange rate. A sharp depreciation could then worsen balance-sheet strains for borrowers exposed to foreign currency and intensify broader financial instability. These are potential transmission channels, not a claim that stablecoins will automatically trigger a crisis. 8

The market is large, but payment use is smaller than headline volume

Stablecoin adoption has grown rapidly. Market capitalisation nearly tripled between 2021 and 2025 and stood at about $300 billion, although it was described as broadly flat over the following year. 9

Transaction totals require more careful interpretation. Estimates put total stablecoin transaction volume at roughly $35 trillion in 2025, but BIS estimates cited by the IMF put payment-related flows at about $390 billion. That is small compared with an estimated annual global cross-border payments market of around $1 quadrillion. 825

Much of the difference reflects activity inside the crypto ecosystem, including trading, liquidity management and transfers between platforms rather than ordinary purchases, remittances or supplier payments. 924

That distinction reduces the case for treating stablecoins as an immediate replacement for the global payments system. It does not eliminate the policy concern. Distribution, interoperability and access to foreign currency could expand faster than domestic payment infrastructure and supervision, particularly during a crisis. This is an inference from the available flow estimates and the IMF’s risk framework. 825

Cross-border expansion shows why regulation cannot stay local

Paxos’s Global Dollar, or USDG, launched for consumers in the European Union under the EU’s Markets in Crypto-Assets framework and was made available through platforms including Kraken and Gate. 30

The example illustrates how a regulated private dollar-token network can extend across jurisdictions. Issuers, reserves, blockchains, exchanges, wallets and users may all be located in different places, leaving gaps if regulators focus only on the entity that creates the token. 830

What policymakers should do

Strengthen the local currency first

The most durable defence against unwanted dollarisation is not a competing token by itself. It is credible monetary policy, sustainable public finances, sound institutions and confidence that the local currency will preserve its usefulness. The IMF’s analysis indicates that stablecoin effects vary according to national macroeconomic frameworks, existing currency substitution, financial-market structure and the availability of local-currency alternatives. 18

Build competitive domestic payment systems

Fast, inexpensive and interoperable domestic payment infrastructure can reduce the practical reasons for using a foreign-currency token. Policymakers should focus on whether households and businesses have reliable options for remittances, commerce and cross-border transfers, rather than assuming that one technology—whether a stablecoin or another form of digital money—will solve every payments problem.

Regulate the whole activity chain

Rules should cover more than the issuer’s label or the token’s stated currency. Key areas include reserve quality and segregation, redemption rights, governance, operational resilience, consumer protection, anti-money-laundering and counter-terrorist-financing controls, data and links to banks and payment systems. 8

Supervision also needs to reach exchanges, wallets, decentralised conversion points and on- and off-ramps. These are the places where users convert between local and foreign currency, and where reporting, identity and capital-flow requirements may otherwise be bypassed. 35

Coordinate across borders

National rules will leave gaps when a token’s issuer, reserve assets, blockchain infrastructure, trading venue and users are spread across multiple jurisdictions. Common standards, information-sharing and coordinated supervision are therefore necessary for widely used stablecoins. 830

Avoid a one-size-fits-all response

Countries with credible currencies and efficient payment options may capture more of the benefits—competition and lower payment costs—while countries with weak policy credibility, restricted dollar access or existing dollarisation face greater risks to monetary sovereignty and financial stability. 17

The policy test is usefulness, not novelty

Stablecoins may compete with faster bank payments, tokenised deposits and other forms of digital money. Their long-term role will depend on whether they provide advantages that traditional financial institutions cannot match while offering sufficient trust, legal protection and interoperability.

For policymakers, Katz’s message is therefore less a call for a blanket ban than a warning against technological shortcuts. Strong macroeconomic foundations, effective domestic payment systems, activity-based regulation and international cooperation can help countries capture the efficiency gains of stablecoins without allowing digital access to foreign currency to become an uncontrolled channel for dollarisation.