Stablecoins mirror dollarisation, challenge monetary control
Stablecoins offer a new channel for US dollar access in emerging market and developing economies (EMDEs), mirroring traditional deposit dollarisation. This development raises concerns about their impact on monetary control and capital flow restrictions.
Dollarisation's persistent echoes
The emergence of stablecoins has created a new channel to access US dollar liquidity in EMDEs, akin to historical foreign-currency deposits.
This phenomenon, termed 'stablecoin dollarisation', shares similar macro-financial drivers with conventional deposit dollarisation, including exchange rate pass-through strength and sovereign or banking crises.
Data from over 130 economies reveals significant persistence in both forms of dollarisation, indicating that reversal is challenging once established.
Unlike traditional deposits, stablecoin flows appear largely unaffected by broad or specific capital flow restrictions, likely due to their circulation partly outside the regulatory perimeter.
Historically, moderate deposit dollarisation has been associated with somewhat higher inflation risks, though with limited impact on monetary policy transmission.
New channels, old challenges
Stablecoins, designed to maintain a stable value relative to a reference currency like the US dollar, have seen their market capitalisation nearly triple since 2023.
This growth is driven by their use as a settlement asset in the crypto ecosystem and, crucially, by offering easy foreign currency access to EMDE residents.
While reminiscent of traditional deposit dollarisation, stablecoins present new challenges due to their ease of access via internet-enabled devices and operation within borderless, decentralised networks.
These features make them harder to track and regulate than conventional dollar deposits, increasing risks for users and policymakers alike.
A familiar, yet elusive threat
The study highlights a critical dichotomy: while stablecoins are driven by familiar economic forces, their inherent design allows them to circumvent established capital controls.
This creates a significant blind spot for regulators, potentially undermining monetary policy effectiveness in vulnerable economies.
The findings underscore an urgent need for global regulatory frameworks to address this evolving, borderless financial challenge.