- Stablecoins may weaken monetary policy effectiveness in some countries.
- They can rapidly enter economies through digital channels like smartphones.
- Most stablecoins, about 97%, are pegged to the U.S. dollar.
- Foreign currency-linked stablecoins could challenge monetary sovereignty, especially when used with unhosted wallets.
- Regulatory measures are advised to prevent digital assets from becoming legal tender.
In a 56-page report released on Thursday, the International Monetary Fund highlighted potential risks stablecoins pose to monetary sovereignty worldwide. The report warns that stablecoins, digital assets pegged to traditional currencies, could reduce the effectiveness of central banks’ monetary policy by enabling “currency substitution,” whereby foreign currency use replaces local currency within domestic economies.
Traditionally, accessing foreign currencies like the U.S. dollar required physical cash or specific bank accounts. However, according to the IMF, stablecoins can quickly penetrate economies via the internet and smartphones, increasing their reach. Most stablecoins, roughly 97% of the $311 billion market, are denominated in U.S. dollars, according to data from CoinGecko. For reference, euro-denominated stablecoins are valued at about $675 million, and those linked to the Japanese yen total approximately $15 million.
The IMF highlighted that the widespread use of foreign currency-pegged stablecoins, especially in cross-border transactions and unhosted wallets—which are digital wallets not linked to an institution—can undermine national monetary control. This shift may reduce central banks’ ability to manage domestic liquidity and interest rates effectively. It could also hinder the adoption of central bank digital currencies (CBDCs), which are digital forms of official currency issued and regulated by central banks.
Increasing stablecoin holdings have been observed in regions including Africa, the Middle East, Latin America, and the Caribbean, areas where foreign exchange deposits play a key role in central banks’ policy tools. The IMF noted that currency substitution often arises from citizens seeking financial stability in countries with high inflation.
To protect monetary sovereignty, the IMF recommends establishing regulatory frameworks that prevent digital assets from being recognized as official currency or legal tender, thereby allowing individuals to decline them as payments.
In related developments, the European Central Bank warned in a November blog post about the risks of dollar-linked stablecoins draining retail deposits from banks, which could reduce banks’ stable funding sources. Conversely, U.S. Treasury Secretary Scott Bessent emphasized benefits from increased demand for government debt backing stablecoins, such as potentially lowering borrowing costs and expanding global access to the dollar-based digital economy.
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