Local stablecoins could reinforce dollar dominance instead of reducing it, the IMF warns. Interoperability with USDT on Ethereum/Tron lets users quickly convert, bypassing currency controls.
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The International Monetary Fund warned that stablecoins pegged to local currencies, a tool designed to reduce dollar reliance in emerging markets, could instead accelerate dollar dominance. The issue lies in the infrastructure: most local stablecoins run on the same blockchains as USDT and USDC, allowing users to swap into dollar-pegged tokens within seconds on decentralized exchanges like Uniswap.
Dan Katz, deputy director of the IMF's monetary and capital markets department, said that in economies such as South Africa, stablecoins denominated in the rand have struggled to gain traction. Users prefer dollar-backed tokens for their liquidity and global acceptance, he said.
The interoperability undermines the original goal. Instead of strengthening the national currency, local stablecoins open a direct path to the dollar, the IMF argued. The mechanism also weakens capital controls, because users can move from a local stablecoin to USDT without going through the traditional banking system.
Tether's USDT benefited most from this dynamic. Its market capitalization exceeded $110 billion, making it the dominant stablecoin in emerging markets where it serves as a hedge against inflation and currency instability, the IMF said. Katz added that the trend could reinforce dollarization even as countries try to resist it.
Tether's market cap stood above $110 billion as of the report's publication, according to CoinGecko.
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