The International Monetary Fund (IMF) has recently continued to issue a strong warning about the risks that stablecoins can pose to the monetary sovereignty of many countries, in the context of the rapidly growing digital asset industry and the increasing popularity of non-custodial wallets globally.
In a 56-page report published on December 4, the IMF stated that stablecoins – although they can expand access to financial services for people – carry the risk of “currency substitution”. According to the organization, once foreign-denominated stablecoins spread, domestic transactions could shift away from the national currency, causing the central bank to gradually lose control of liquidation, interest rates and monetary policy direction.
The IMF notes that in the past, people were forced to hold cash or open a bank account to access dollars. But with stablecoins, everything has changed: “Stablecoins can penetrate the economy very quickly through the internet and smartphones.” This is especially dangerous in emerging economies – where inflationary pressures and people seeking safe havens have made stablecoins a more popular choice than foreign currency savings.
In fact, the amount of stablecoins held by people in Africa, the Middle East, Latin America and the Caribbean has increased significantly compared to the amount of traditional foreign currency deposits. The IMF admits that this trend is largely due to the need to protect the value of assets, especially in countries with high inflation. However, that also makes it difficult for CBDCs (central bank digital currencies) – which are expected to be a “state counterweight” to private stablecoins – to compete.
Currently, USD Peg stablecoins account for 97% of the total market Capital of the industry, estimated at around $311 billion according to CoinGecko data. Meanwhile, Euro- Peg stablecoins are worth around $675 million, and JPY- Peg ones are only worth around $15 million – showing the absolute dominance of the greenback in the stablecoin space.
To protect monetary sovereignty, the IMF recommends that countries have clear legal frameworks to prevent digital assets from being recognized as legal tender. This would limit the ability of stablecoins to replace local currencies for everyday payments – especially in countries that are not yet ready for this transition.
Not only the IMF, the European Central Bank (ECB) also warned about the risks of stablecoins in an analysis published in November. The ECB noted that the strong growth of stablecoins could cause Capital to leave the traditional banking system, reducing important Capital sources for banks and making financial markets more volatile.
In contrast, in the US – where stablecoins are XEM as a tool to support the digitalization of finance – some officials see the benefits. When Washington passed the stablecoin law earlier this year, US Treasury Secretary Scott Bessent said that the boom in demand for USD Peg stablecoins could increase the appeal of US government bonds, creating additional demand for public debt.
