International Monetary Fund First Deputy Managing Director Dan Katz has warned that local-currency stablecoins intended to reduce reliance on dollar-backed tokens could instead accelerate adoption of digital dollars, creating a policy dilemma for emerging market central banks.
Speaking at the University of Cape Town on August 7, Katz argued that once local and dollar stablecoins operate on the same blockchain infrastructure, users can easily convert between them through decentralized exchanges, liquidity pools, or peer-to-peer swaps, undermining the very goal of reducing dollar dependence.
In this way, local-currency stablecoins might even accelerate the adoption of FX stablecoins, Katz said in prepared remarks, noting that dollar-backed stablecoins have gained limited traction in South Africa but rand-linked tokens have attracted even less demand.
The paradox stems from the technical architecture of stablecoin networks. When both types of stablecoins share common blockchain rails, users gain seamless cross-border payment capabilities and superior liquidity by holding dollar tokens, which maintain deeper markets and wider acceptance across platforms and borders.
Katz acknowledged that risks vary by country. Stablecoins may largely replace existing dollar holdings in highly dollarized economies but could increase foreign-currency demand in countries where access to dollars is restricted and economic frameworks are weak. The distinction matters for central banks trying to maintain monetary policy independence.
The warning comes as central banks worldwide grapple with the rise of stablecoins. At the World Economic Forum in Davos in January, panelists warned that dollar-backed tokens could pressure local monetary frameworks and trigger deposit shifts in emerging markets, a concern that has only intensified as stablecoin adoption accelerates.
Major stablecoin issuers Tether and Circle together control roughly $200 billion in tokenized dollars, with the vast majority of fiat-backed stablecoins pegged to the US dollar. The IMF has previously cautioned that widespread stablecoin adoption in developing countries could represent a digital form of dollarization that weakens domestic monetary policy transmission.
The remarks signal that even as governments explore central bank digital currencies and local stablecoin initiatives, the gravitational pull of dollar liquidity on blockchain networks may be harder to counteract than policymakers initially assumed.
Sources: Cointelegraph – IMF Stablecoins Warning, Crypto Briefing – IMF Dollar Concerns, IMF – Dan Katz Remarks
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