IMF Warns Widespread Stablecoin Use Could Weaken Central Bank Control
The rapid expansion of stablecoins in emerging and developing economies is drawing increasing scrutiny from global financial authorities. A recent report from the International Monetary Fund (IMF) warns that widespread use of foreign-denominated digital currencies could erode countries’ monetary sovereignty, limiting central banks’ ability to manage domestic economies effectively.
Dollar-Pegged Stablecoins Gain Traction in Inflation-Prone Regions
The report highlights that digital assets pegged to the US dollar are gaining popularity in regions suffering from high inflation and limited access to stable financial infrastructure. This trend risks diverting economic activity away from local currencies, complicating central banks’ efforts to control liquidity and set interest rates.
The IMF identifies “currency replacement” as a key concern, noting that stablecoins can spread quickly via smartphones and digital payment channels, bypassing traditional banking systems. Unlike historical reliance on physical US dollars or foreign currency accounts for liquidity, digital stablecoins can scale rapidly, reducing local authorities’ control over monetary policy. Data in the report shows that US dollar-pegged stablecoins account for 97% of the market, valued at approximately $311 billion, while euro-linked stablecoins stand at $675 million and yen-linked assets at just $15 million, underscoring the dollar’s dominance in the global digital currency ecosystem.
Rising Stablecoin Holdings Challenge Traditional Monetary Tools
Stablecoin adoption is increasing relative to traditional foreign currency deposits in Africa, the Middle East, Latin America, and the Caribbean—deposits historically used by central banks to manage monetary policy. In high-inflation environments, households often turn to stablecoins as a practical way to preserve the value of their savings, further reducing the effectiveness of traditional policy levers.
The IMF report emphasizes that central bank digital currencies (CBDCs) may struggle to gain traction if foreign stablecoins become widely used in everyday payments. Unlike private stablecoins, CBDCs are sovereign instruments managed by national authorities. The IMF recommends governments enact rules to prevent stablecoins from acquiring legal tender status, as doing so could limit a state’s ability to reject non-sovereign payment instruments.
Global Regulatory Concerns and Potential Benefits
Other central banks have voiced similar concerns. In November, the European Central Bank warned that the rapid growth of dollar-pegged stablecoins could drain deposits from commercial banks, creating funding volatility and challenges in liquidity management.
However, the report also notes potential benefits. In the United States, stablecoin legislation passed earlier this year could increase demand for government debt to back these digital assets. Treasury Secretary Scott Bisent highlighted that this might lower borrowing costs and broaden access to dollar-based digital systems, presenting an opportunity for greater economic participation within carefully designed regulatory frameworks.
