Domestic-currency stablecoins, which some policymakers hope will limit dependence on dollar-backed digital tokens, may actually make it easier for users to access and hold digital dollars, according to Dan Katz, First Deputy Managing Director at the International Monetary Fund (IMF).
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AAPLStablecoins and cross-border impact
Speaking recently at the University of Cape Town, Katz addressed the evolving role of stablecoins in global finance. He explained that national stablecoins and dollar-backed stablecoins could begin operating on the same blockchain infrastructure, allowing users to switch between them via decentralized exchanges, liquidity pools, or peer-to-peer transactions.
Katz highlighted a possible consequence: the shift of foreign exchange (FX) activity away from banks and traditional currency dealers. This process, he noted, would reduce transaction friction but also diminish the ability of authorities to observe and control capital flows.
Katz stated that these changes could actually accelerate the adoption of dollar-backed stablecoins, despite the original intent behind launching domestic alternatives.
In South Africa, for example, Katz observed that dollar-backed stablecoins currently attract more attention in the market than tokens tied to the South African rand.
He cautioned that it is too soon to draw decisive conclusions, but initial trends suggest that many users prefer digital dollars due to their higher liquidity, stronger network effects, and broader acceptance across different platforms and countries.
Mini dictionary: Stablecoin, a digital asset designed to maintain a stable value by being pegged to a reserve, often a fiat currency such as the US dollar or a local currency like the rand. These tokens enable fast digital transactions without the volatility common in traditional cryptocurrencies.
Regulatory concerns and national risks
Katz noted the potential risks arising from stablecoin adoption, which can differ based on specific national circumstances.
In countries already highly dollarized, new stablecoins may simply replace existing physical or digital dollar holdings with their tokenized versions. However, in jurisdictions where access to US dollars is limited and macroeconomic policy frameworks are fragile, stablecoins could increase foreign currency demand and place additional strain on local economies.
Katz urged that authorities need to adapt regulatory oversight to these developments. He recommended establishing regulatory frameworks for digital asset onramps, offramps, and onchain exchange points to better manage flows and potential vulnerabilities in the digital currency ecosystem.
He emphasized the importance of bringing all points where users enter, exit, and exchange stablecoins on-chain within the scope of regulation.
The IMF, an international financial institution providing monetary cooperation and stability advice to its member countries, continues to monitor how these emerging forms of money may affect capital controls, monetary policy, and financial stability on a global scale.
