The International Monetary Fund (IMF) has published a working paper that examines the complex role of dollar-pegged stablecoins in economies with fixed or heavily managed exchange rates. The paper, titled “Stablecoins and Fragility in Fixed Exchange Rate Regimes” and authored by economist Brandon Joel Tan, finds that while stablecoins can improve access to foreign currency when official channels are limited, they may also amplify currency runs during periods of severe exchange-rate stress.
Dollar stablecoins, such as USDT (Tether) and USDC (USD Coin), have become increasingly popular in emerging markets where access to U.S. dollars is restricted or where local currencies are depreciating rapidly. In countries like Argentina, Turkey, and Nigeria, residents have turned to stablecoins as a store of value and a medium of exchange, effectively bypassing capital controls and official foreign exchange markets.
The IMF paper models how stablecoins interact with parallel foreign exchange (FX) markets, which emerge when official exchange rates deviate significantly from market rates. In such environments, stablecoins provide a convenient digital channel for converting local currency into dollar-denominated digital assets. However, the same transparency that makes stablecoins useful—their publicly observable price on global exchanges—can also act as a coordination mechanism for currency runs.
Tan argues that when a country’s official exchange rate is far from the market rate, the stablecoin price becomes a visible indicator of dollar scarcity. This can trigger a wave of panicked conversions out of the local currency, as many individuals simultaneously observe the same signal. The paper suggests that regulators may need to implement temporary limits on unusually large or panic-driven transactions to prevent such destabilizing dynamics.
The findings come at a time when stablecoin issuance has grown to tens of billions of dollars, with the majority pegged to the U.S. dollar. These digital assets operate on public blockchains, making their supply and transaction data transparent. While this transparency is often touted as a benefit, the IMF paper highlights how it can also amplify financial fragility in countries with weak monetary credibility.
Stablecoins emerge as parallel FX benchmarks
The paper’s theoretical insights are grounded in real-world examples. In June 2025, reports emerged from Bolivia that airport retailers were pricing goods using USDT as a reference rate, while still accepting U.S. dollars or bolivianos. This practice reflects the growing use of stablecoins as a benchmark for parallel market exchange rates, even in countries where official dollar access is limited.
Similarly, in Argentina, a country with a long history of currency controls and high inflation, residents have used underground “crypto caves” to exchange pesos for dollar-stablecoins at rates closer to the unofficial market. This practice, widely reported in 2024, gave Argentines an alternative way to preserve savings as the peso lost value and access to physical dollars remained restricted. The stablecoin market in Argentina has become so significant that it influences the gap between the official and unofficial exchange rates.
These examples illustrate the dual nature of stablecoins: they provide a vital lifeline for individuals seeking to protect their wealth from inflation and capital controls, but they also create new channels for currency substitution, which can undermine monetary policy and exchange rate stability. The IMF paper notes that stablecoins make “dollar-like claims easier to access” while creating a visible, high-frequency price for dollar demand. This price signal can accelerate the very outflows that governments seek to manage.
Historical parallels are instructive. Before the widespread adoption of digital currencies, parallel FX markets existed in the form of physical cash trading on street corners or through informal brokers. These markets had limited transparency and were often illiquid. Stablecoins, by contrast, operate on global 24/7 markets with deep liquidity, making them far more efficient—and potentially far more destabilizing—than their analog predecessors.
Regulatory perspectives and global risks
The IMF working paper complements other recent regulatory warnings. In March 2025, the Financial Stability Board (FSB) released a statement emphasizing that dollar stablecoins could expose emerging economies to currency substitution, weaker monetary policy transmission, and circumvention of capital-flow management measures. The FSB urged national lawmakers to closely monitor the stablecoin sector and assess how it interlinks with the broader financial system, particularly as stablecoin issuers become more integrated with traditional banking and payments infrastructure.
The FSB's concerns are not merely theoretical. In 2023, the collapse of several stablecoin projects and the partial de-pegging of certain tokens highlighted operational and liquidity risks. While the largest stablecoins have maintained their dollar pegs during periods of market stress, the interconnectedness of the stablecoin ecosystem with decentralized finance (DeFi) platforms and centralized exchanges poses systemic risks that regulators are only beginning to understand.
One key risk highlighted in the IMF paper is the potential for stablecoins to facilitate capital flight during a balance-of-payments crisis. In a fixed exchange rate regime, maintaining a credible peg requires sufficient foreign reserves. When residents convert local currency into stablecoins, they effectively shift dollar demand from the official banking system to the digital asset ecosystem. This reduces the central bank’s ability to defend the peg and can exacerbate reserve depletion.
Moreover, because stablecoins are often held in non-custodial wallets or on foreign exchanges, they can be moved across borders with little friction, bypassing traditional capital control measures. This undermines the effectiveness of policies designed to stem capital outflows, such as restrictions on foreign exchange purchases or limits on bank transfers.
Balancing innovation with stability
Not all implications are negative. The IMF paper acknowledges that stablecoins can improve financial inclusion in countries with underdeveloped banking systems. For individuals without access to formal financial services, stablecoins offer a low-cost, accessible way to hold dollar-denominated assets. This can be particularly valuable in economies where inflation erodes the purchasing power of the local currency and where bank accounts are difficult or expensive to obtain.
In addition, stablecoins can facilitate cross-border remittances, which are a critical source of income for many developing nations. Traditional remittance channels often charge high fees and take days to settle. Stablecoins can reduce costs to near zero and enable near-instant settlement, provided that both sender and recipient have internet access. This efficiency gain is a significant benefit for households that rely on remittances.
The challenge for regulators is to harness these benefits while mitigating the risks. The IMF paper suggests temporary transaction limits during periods of extreme stress, such as currency crises, as a potential tool. These “circuit breakers” could prevent panic-driven herding without permanently restricting the use of stablecoins. Other policy options include requiring stablecoin issuers to hold high-quality liquid assets, improving transparency around reserve backing, and enhancing cross-border cooperation between financial regulators.
The paper also discusses the role of central bank digital currencies (CBDCs) as a potential alternative to stablecoins. If central banks can offer a digital dollar or digital local currency that is as accessible and efficient as stablecoins, they might reduce the demand for private digital dollars. However, CBDCs come with their own privacy and implementation challenges, and few countries have fully deployed them.
Implications for emerging markets
The findings of the IMF paper are particularly relevant for emerging markets that are considering whether to embrace or restrict stablecoins. Countries like Nigeria, which has both a fixed exchange rate and a vibrant stablecoin market, face a delicate balancing act. The Central Bank of Nigeria has oscillated between banning crypto transactions and introducing regulatory frameworks, as it grapples with the rapid adoption of stablecoins by its tech-savvy population.
Similarly, El Salvador’s adoption of Bitcoin as legal tender has drawn attention to the role of digital currencies in dollarized economies. While Bitcoin is not a stablecoin, the Salvadoran experience highlights how digital assets can interact with monetary policy and public trust in the national currency.
The IMF paper concludes that stablecoins are not inherently good or bad, but their impact depends on the macroeconomic context and the regulatory environment. In countries with strong institutions and credible monetary policy, stablecoins may offer limited benefits and pose limited risks. In fragile economies, however, they can become a channel for instability. The paper calls for a nuanced approach that recognizes the diversity of country circumstances.
As the stablecoin market continues to evolve, with new issuers and products emerging regularly, the need for rigorous analysis and adaptive regulation will only grow. The IMF’s work provides a useful framework for understanding the complex dynamics at play, and underscores the importance of coordination between international financial institutions and national authorities.
Source:Cointelegraph News