BIS: Stablecoins Act Like ETFs, Not Dollars, and They Create FX Risk

A bigger problem sits inside that structure. The report finds rising flows of non-dollar currencies into dollar-pegged stablecoins. Those flows can weaken domestic currencies in the spot market. They also create friction in arbitrage between crypto markets and conventional foreign exchange markets, and may raise the cost of buying dollars through the FX swap market.

The BIS frames this as a faster, harder-to-police version of deposit dollarization. During macroeconomic stress, households move into foreign-currency bank deposits. The same triggers – high inflation, sovereign strain – now drive inflows into foreign stablecoins. Once dollarization takes hold, the BIS notes, it tends to persist for years.

Enforcement is the weak link. A number of countries, particularly emerging market economies, have already imposed restrictions on cross-border stablecoin use. The BIS said such measures “are, however, likely to be imperfect given the digital bearer-like nature of tokens and the availability of unhosted wallets.” Capital controls that work on traditional bank deposits do not translate cleanly to a self-custodied, borderless token.

For traders, the readthrough is concrete. Stablecoin-driven dollarization adds a new layer of FX volatility to emerging-market currencies. Exchanges and issuers face mounting regulatory scrutiny – tighter compliance, potential restrictions. DeFi protocols that rely on stablecoins as collateral could face disruption if a major issuer suffers a run or a regulator shuts off redemption channels. The BIS said the trend is already underway and likely to persist.