Local-currency stablecoins designed to reduce dependence on dollar-pegged tokens may paradoxically accelerate the shift toward digital dollars, a senior International Monetary Fund official warned on Friday.
Onchain Swaps as the Gateway
IMF First Deputy Managing Director Dan Katz, speaking at the University of Cape Town, said that once domestic and dollar stablecoins share the same blockchain infrastructure, users can convert between them freely through decentralised exchanges, liquidity pools, or peer-to-peer swaps.
That ease of conversion shifts foreign exchange activity away from banks and currency dealers, stripping away the friction that normally gives authorities the tools to monitor and manage capital flows.
‘In this way, local-currency stablecoins might even accelerate the adoption of FX stablecoins,’ Katz said.
South Africa as a Case Study
Katz pointed to South Africa as an early illustration of the dynamic. Dollar-backed stablecoins have gained only limited traction in the country, while rand-linked tokens have attracted even less demand. He cautioned it was too early to draw firm conclusions, but said many users appear to prefer dollar tokens for their superior liquidity, network effects, and acceptance across platforms and borders.
Risks Vary by Country
The IMF official noted the risk profile differs depending on a country’s existing monetary conditions. In highly dollarised economies, stablecoins would likely substitute for dollar holdings users already hold. In countries where access to dollars is restricted and economic frameworks are fragile, however, stablecoin infrastructure could actively increase foreign-currency demand, compounding existing vulnerabilities.
Calls for Regulatory Action
Katz urged authorities to bring onramps, offramps, and onchain exchange points inside regulatory frameworks before the market matures further, warning that onchain swap activity could otherwise move foreign exchange flows out of sight of central banks and currency regulators.
The remarks add a new dimension to the debate over how emerging-market regulators should approach stablecoin policy. Rather than treating local-currency tokens as a straightforward hedge against dollarisation, authorities may need to account for the possibility that shared blockchain rails turn those tokens into a stepping stone toward the very dollar exposure they were meant to limit.
