IMF warns local stablecoins risk accelerating digital dollar adoption

Domestic stablecoins designed to strengthen national currencies could instead speed the shift toward digital dollars, the International Monetary Fund warned on Aug. 7.

IMF First Deputy Managing Director Dan Katz raised the concern during a speech at the University of Cape Town. He said that when local-currency stablecoins and dollar-denominated stablecoins operate on the same blockchain infrastructure, foreign exchange conversion becomes easier. Users can swap between them through decentralized exchanges, liquidity pools, or peer-to-peer transactions instead of going through banks and conventional currency dealers. In that environment, Katz said, local tokens “might even accelerate the adoption of FX stablecoins.”

Katz was not presenting that outcome as certain. The IMF’s assessment starts with a stablecoin market that remains overwhelmingly dollar-linked. Katz said stablecoin market capitalization has stayed around $300 billion over the past year after nearly tripling between 2021 and 2025. Almost 99% of stablecoins are denominated in dollars.

That dominance gives dollar-backed tokens stronger liquidity and broader acceptance across exchanges, payment platforms, and international markets. Domestic currency stablecoins have to compete with those existing network effects even when regulators or companies introduce them as alternatives.

South Africa offers an early example. Katz said dollar stablecoins have so far gained only limited traction in the country, yet rand-denominated stablecoins have attracted even less demand. He cautioned that it is “too early to draw firm conclusions” about whether that pattern will persist.

The South African Reserve Bank’s Financial Stability Review has documented growing activity involving dollar-pegged tokens. Trading volumes for U.S. dollar stablecoins on domestic platforms rose from less than 4 billion rand in 2022 to almost 80 billion rand during the first 10 months of 2025.

South African authorities have been reassessing the country’s digital money framework while placing greater emphasis on wholesale central bank digital currency use cases and regulation of private digital assets, as previously reported.

The IMF’s concern centers on the ease of moving between currencies once different stablecoins share blockchain infrastructure. A user holding a local currency token may no longer need to approach a bank or traditional foreign exchange provider to obtain a dollar-denominated asset. Instead, decentralized exchanges and liquidity pools can provide direct trading pairs between domestic and dollar stablecoins. Peer-to-peer transactions offer another route. Katz argued that this could shift some foreign exchange activity away from financial institutions that traditionally act as regulatory checkpoints.

That matters because banks and currency dealers can be required to report transactions, enforce foreign exchange restrictions, and apply capital flow controls. Onchain transactions using self-custody wallets can be harder for authorities to monitor in the same way.

Research from the Bank for International Settlements has raised similar questions. A study examining four dollar stablecoins and 27 fiat currencies found that more than 70% of cumulative net fiat inflows into the tokens came from non-dollar currencies. Researchers also found links between stablecoin demand, currency depreciation, and pricing differences between onchain and traditional foreign exchange markets.

BIS research found broadly similar stablecoin inflows in countries with and without restrictions on cross-border stablecoin use. Researchers said self-hosted wallets and the borderless nature of blockchain transactions could reduce the effectiveness of some conventional controls.