Stablecoins reshape global finance, EMDEs face risks

Stablecoins have grown rapidly, with market capitalisations exceeding $300 billion in 2026 and cross-border transaction volumes surpassing $400 billion as of 2024.

Approximately 98 percent of stablecoin value is dollar-denominated, suggesting an initial reinforcement of existing currency hierarchies rather than a challenge.

The paper argues that stablecoins are most likely to affect private sector store of value and medium of exchange roles, particularly in emerging market and developing economies (EMDEs) facing macroeconomic instability.

While stablecoins can reduce cross-border payment costs and enhance financial inclusion, their rapid adoption, especially of foreign currency stablecoins, risks eroding monetary sovereignty.

This can complicate capital controls and create new channels for financial instability, making countries vulnerable to sudden stops and currency crises.

The concentration of stablecoin reserves in US Treasury bills also links global demand for private dollar payment instruments to demand for US sovereign debt, potentially affecting yields and monetary policy transmission.

The paper develops three scenarios for future stablecoin adoption.

In "niche adoption," impacts remain contained within crypto ecosystems, with limited real-economy penetration.

"Digital dollarisation" envisions rapid adoption of dollar-denominated stablecoins as a de facto cross-border payment infrastructure in many EMDEs, posing acute risks to monetary sovereignty through rapid currency substitution.

The third scenario, "domestic stablecoin integration," involves EMDEs licensing regulated entities to issue local currency stablecoins that interoperate with national payment systems.

This path offers efficiency gains while preserving policy autonomy, but requires significant regulatory capacity and cross-border cooperation to address potential systemic risks.