The International Monetary Fund warned that fast-growing stablecoins could accelerate currency substitution in countries with weak monetary systems, as rising dollar-token adoption threatens capital flow control and monetary authority tools.
The new IMF report states that households and firms could move away from local currencies as dollar-denominated stablecoins expand. The IMF links this shift to high inflation and weak domestic trust.
It notes that the ease of cross-border use increases the likelihood of foreign-currency adoption through digital tokens. This trend could weaken national monetary frameworks and reduce their effectiveness. The report adds that two major stablecoins, USDT and USDC, tripled in size since 2023 and reached $260 billion combined. Trading volumes climbed to $23 trillion in 2024, which expanded their global influence.
The IMF wrote that stablecoins may cause sharp capital flow swings and bypass existing capital controls. It also stated that payment systems could fragment when interoperability rules remain absent. The report argues that these risks grow larger in countries with weak institutions or unstable prices because trust in domestic currency falls.
This could reshape the monetary landscape for developing economies. Therefore, the fund frames stablecoins as a direct challenge to monetary sovereignty, placing them near core policy topics such as capital flow rules and central bank digital currency design.
The IMF says domestic policy tools could weaken if residents choose to save and transact in dollar stablecoins. This reduces the central bank’s influence over liquidity and interest transmission. It also notes that reduced control makes crisis management harder as policymakers lose key levers used to support markets. This includes intervention tools and steps that stabilize local currencies when pressure grows.
The report draws from recent consultations in regions like Latin America, Sub-Saharan Africa, and Eastern Europe, where staff observed fast adoption of US dollar tokens. Asia now leads global stablecoin activity, yet usage relative to GDP remains highest in Africa, the Middle East, and Latin America. These regions already face historical currency substitution risks.
This distribution shows how dollar stablecoin demand spreads across markets with economic volatility. It also raises questions about how countries can maintain monetary stability while digital tokens expand. Can national authorities retain policy effectiveness when foreign-denominated stablecoins dominate daily transactions?
The IMF notes that stablecoins could still expand financial access in developing regions. Many areas use mobile-based services more than traditional banking, which creates new digital entry points. It says stablecoins may lower payment costs and widen inclusion if supported by credible legal and regulatory frameworks that ensure strong oversight. This depends on regional rulemaking progress.
The fund aligns with the G20 and FSB on the “same activity, same risk, same regulation” principle as a global standard for digital asset oversight. The IMF warns that fragmented rules create regulatory gaps that issuers may exploit. These gaps also increase systemic risks across borders.
It calls for consistent legal definitions for stablecoins and strict reserve and redemption standards to build transparency. This includes clear reporting on custody and reserve composition. The report further urges coordinated supervision through cross-border regulatory colleges. This would prevent oversight gaps as stablecoin use expands worldwide.
Also Read: IMF Urges El Salvador to Refine Bitcoin Policies and Enhance Oversight
The IMF warns that fast-growing dollar stablecoins may intensify currency substitution and reduce monetary control in economies with weak financial systems. The report urges stronger global coordination and transparent regulation to manage rising risks and protect policy stability. Authorities must now act to reinforce oversight frameworks.