The IMF says large dollar stablecoins could accelerate currency substitution, weaken monetary controls in fragile economies and require strict, globally coordinated regulation and reserves.
Summary
- The IMF notes that stablecoins are worth more than $300 billion, largely pegged to the dollar, and can gain an edge over local banks and payment systems through smartphones and unhosted wallets.
- The widespread use of stablecoin dollars could shift savings and payments abroad, weakening central banks’ control over liquidity, lending and interest rates, especially in states with high inflation.
- The document supports ‘same activity, same risk, same regulation’ and calls for harmonized laws, strict reserve and redemption rules and coordination to prevent shadow banking risks.
The International Monetary Fund published a paper warning that large foreign currency stablecoins could accelerate currency substitution and erode monetary controls in weaker economies, according to a paper titled ‘Understanding Stablecoins’.
The global capitalization of stablecoins now exceeds $300 billion, with around 97 percent of outstanding tokens denominated in the US dollar, the paper said. According to the IMF, influence is concentrated among issuers such as Tether and Circle.
IMF pushes for stablecoins
The fund warned that foreign stablecoins could bypass domestic banks and payment rails and quickly enter economies via the internet and smartphones. The use of foreign currency tokens could lead to currency substitution and potentially undermine monetary sovereignty, especially in the presence of unhosted wallets, the paper said. According to the IMF, the risk is most acute in countries with high inflation, weak institutions or low confidence in the local currency.
If a large share of domestic payments and savings migrate to dollar-denominated stablecoins, central banks will lose control over liquidity conditions, credit creation and interest rate transmission, the paper warned. Late-launched central bank digital currencies may struggle to displace private stablecoins once they achieve network effects in retail payments, cross-border fund transfers and merchant settlement, the IMF said.
On regulation, the IMF joined the G20 and the Financial Stability Board in endorsing the principle of ‘same activity, same risk, same regulation’. The document called for harmonized legal definitions of stablecoins, strict reserve and redemption standards, detailed disclosure of reserve composition and custody, and cross-border supervisory boards to prevent issuers from abusing jurisdictional gaps.
The IMF identified high-risk structures, such as algorithmic or partially collateralized stablecoins, and warned that the use of these tokens could transmit volatility to both crypto markets and local banking systems. The authors contrasted these designs with fully backed fiat reference currencies containing short-term government bonds and cash at regulated institutions, but highlighted concentrated exposure to one foreign currency as a macro-financial vulnerability for smaller states.
The article notes fragmented regulatory frameworks across jurisdictions, arguing that regimes such as the European Union’s Markets in Crypto-Assets (MiCA) regulation, Japan’s stablecoin framework and several US state-level regimes create room for regulatory arbitrage. The IMF urged authorities to coordinate licensing, reserve rules, anti-money laundering and anti-terrorist financing requirements, and reimbursement rights to avoid a repeat of the build-up of ‘shadow banks’ that preceded the 2008 financial crisis.
Without consistent global regulation, stablecoins could circumvent national security measures, destabilize fragile economies and spread financial shocks across borders at high speed, the paper said.
The publication follows several country-level consultations in which IMF staff raised concerns about the unregulated use of stablecoin dollars in Latin America, Sub-Saharan Africa and parts of Eastern Europe, the fund said.
The document framed dollar stablecoins as a monetary sovereignty issue rather than a niche payments product, placing major dollar stablecoins in the same policy conversation as capital controls, currency interventions and central bank digital currencies, the IMF said.
