The International Monetary Fund (IMF) has published a working paper that explores the dual role of US dollar stablecoins in economies with fixed or heavily managed exchange rates. The paper, authored by economist Brandon Joel Tan, finds that these digital assets can improve access to foreign currency when official channels are constrained, but they may also amplify currency runs during periods of severe exchange-rate pressure.
Stablecoins are cryptocurrencies designed to maintain a stable value relative to a reference asset, most commonly the US dollar. They have grown significantly in usage, particularly in emerging markets where residents face capital controls, high inflation, or limited access to foreign currency. The IMF paper models how stablecoins interact with parallel foreign-exchange (FX) markets, where dollars trade at a premium over the official rate.
How Stablecoins Affect Parallel FX Markets
Tan's model suggests that stablecoins serve as a bridge for individuals and businesses to obtain dollar exposure without relying on banks or official exchange windows. In countries where the government rations dollar access, stablecoins can provide a more efficient channel for acquiring dollar-like claims. This can reduce the premium in parallel markets and make foreign currency more broadly available.
However, the same mechanism can become destabilizing. Stablecoin prices are transparent, high-frequency signals of dollar demand. When the official exchange rate diverges significantly from the market rate, the stablecoin price reveals the true scarcity of dollars. During a currency crisis, a widening gap can prompt a coordinated rush out of the local currency, as many market participants observe the same data and act simultaneously. This coordination effect is a key risk identified in the paper.
The IMF working paper draws on historical precedents from currency crises in emerging economies, where parallel markets often played a role in amplifying pressure. Tan argues that stablecoins make this dynamic more efficient and faster, potentially shortening the time frame in which authorities must respond.
Real-World Use Cases
Stablecoins are already being used in several countries with restricted dollar access. In Bolivia, for example, airport retailers were observed in June 2025 pricing goods using Tether (USDT) as a reference, while still accepting US dollars or local bolivianos. This indicates that stablecoins are becoming a benchmark for dollar valuation in everyday transactions.
In Argentina, a country with a long history of currency controls and inflation, residents have turned to informal networks known as "crypto caves" to exchange pesos for dollar stablecoins. These transactions occur at rates closer to the unofficial market than the official rate. The practice offers a way to preserve savings as the peso depreciates and official dollar access remains limited. Such use highlights the demand for stablecoins as a store of value and medium of exchange in constrained environments.
These examples underscore the benefits stablecoins bring: they democratize access to foreign currency, reduce transaction costs, and provide a hedge against local currency devaluation. Yet they also introduce new channels for capital flight and currency substitution, which can weaken monetary policy effectiveness.
Broader Regulatory Concerns
The IMF paper is not the only official body to flag risks from stablecoins. In March 2025, the Financial Stability Board (FSB) issued a statement warning that dollar stablecoins could expose emerging economies to currency substitution, undermine monetary sovereignty, and facilitate circumvention of capital flow management measures. The FSB urged national regulators to monitor stablecoin markets closely and consider adapting their frameworks to address liquidity and operational risks as stablecoins become more interconnected with the traditional financial system.
Experts have also noted that the growth of stablecoins could lead to a de facto dollarization of parts of the economy, reducing the central bank's ability to control inflation and interest rates. In extreme cases, a sudden loss of confidence in a stablecoin issuer or a technical failure could trigger a liquidity crisis that spills over into the broader financial system.
Potential Policy Responses
The IMF working paper suggests several possible regulatory measures. One approach is to impose temporary limits on unusually large or panic-driven stablecoin transactions during periods of exchange-rate stress. Such circuit breakers could help prevent a coordinated run while giving authorities time to address the underlying macroeconomic imbalances.
Another option is to require stablecoin issuers to hold high-quality liquid assets in the same jurisdiction where the stablecoin is used, ensuring that redemptions can be honored even during stress. However, this may be difficult to enforce across borders, given the global nature of stablecoin issuance.
Some central banks have explored issuing their own digital currencies (CBDCs) as a counterweight to private stablecoins. A well-designed CBDC could offer the same benefits of digital dollar access while being subject to regulatory oversight and aligned with monetary policy objectives. However, CBDCs face their own challenges in terms of privacy, technology, and adoption.
The IMF paper also highlights the importance of data transparency. Because stablecoin transactions are recorded on public blockchains, they provide a rich source of information about currency demand and capital flows. Authorities could use this data to monitor stress in real time and calibrate policy responses more effectively.
Ultimately, the impact of stablecoins on exchange-rate stability will depend on the broader macroeconomic environment and the regulatory framework in place. In countries with strong fundamentals and credible policies, stablecoins may offer net benefits by improving access to foreign currency. In fragile economies, they could act as an accelerant during currency crises, making it harder for authorities to defend their exchange rate.
The IMF working paper adds to a growing body of research on the implications of digital assets for monetary and financial stability. As stablecoin adoption continues to rise, policymakers will need to balance innovation with safeguards that protect against systemic risk. The paper suggests that while stablecoins are not inherently destabilizing, their design and the context in which they operate matter greatly.
Brandon Joel Tan's analysis provides a framework for understanding the trade-offs involved. The challenge for regulators is to harness the benefits of stablecoins for financial inclusion and efficiency while mitigating the risks of coordinated runs and currency substitution. The next few years will likely see further debate and experimentation as countries grapple with these issues.
Source: Cointelegraph News