IMF Warns Domestic Stablecoins Could Accelerate Dollar Token Adoption Instead of Curbing It

Domestic-currency stablecoins designed to reduce reliance on dollar-backed tokens could actually make it easier for users to shift funds into digital dollars, according to a senior IMF official.

Shared Infrastructure Creates Easy Conversion

IMF First Deputy Managing Director Dan Katz said that once local and dollar stablecoins operate on the same blockchain infrastructure, users can freely convert between them through decentralized exchanges, liquidity pools, or peer-to-peer swaps. Speaking at the University of Cape Town on Friday, Katz warned this could shift foreign exchange activity away from banks and currency dealers, reducing the tools authorities rely on to monitor and manage capital flows.

South Africa as an Early Example

Katz pointed to South Africa, where dollar-backed stablecoins have seen modest adoption while rand-linked tokens have attracted even less interest. He said it remains too early to draw firm conclusions, but many users likely favor dollar tokens due to their liquidity, established network effects, and broader acceptance across platforms and borders.

Risks Vary by Economic Context

Katz noted that in highly dollarized economies, stablecoins may simply replace existing dollar holdings, while in countries with restricted dollar access and weaker economic frameworks, they could actually increase demand for foreign currency. He urged regulators to bring onramps, offramps, and onchain exchange points fully within existing regulatory frameworks to manage these risks.