Spread of Dollar Stablecoins Threatens Monetary Sovereignty in Emerging Markets

The growing use of dollar-based stablecoins in global payments is weakening monetary sovereignty and capital controls in emerging-market financial systems, the Financial Times reported. The trend is also affecting financial stability and regulatory frameworks more broadly by structurally increasing reliance on the US dollar.

The FT reported on April 21 that officials at the Bank for International Settlements and senior central bankers have warned the rapid expansion of stablecoins could accelerate dollarization in emerging economies. In a speech in Japan, BIS General Manager Pablo Hernandez de Cos said stablecoins could make it easier to bypass capital controls and expand channels for tax evasion and illicit transactions.

The issue also came up at the International Monetary Fund and World Bank meetings in Washington last week. Policymakers said that if dollar-denominated stablecoins gain traction quickly as a means of payment in emerging markets, the use of dollar-based assets instead of local currencies could spread further. That would undermine the effectiveness of monetary policy.

The market's size and growth are adding to those concerns. About 98% of the roughly $315 billion global stablecoin market is dollar-based. In some emerging economies, stablecoins already account for a significant share of not only cross-border transfers but also everyday payments. Investors are using them to shield themselves from high inflation and currency depreciation.

Growth projections are steep. Standard Chartered estimates that dollar stablecoins held by individuals in emerging markets will climb to $1.22 trillion by 2028 from $173 billion last year. The bank expects faster adoption in countries experiencing balance-of-payments crises or operating under IMF programs. That would mark a structural shift of funds into external digital assets rather than instruments within the domestic financial system.

There is also a more favorable view. The IMF said stablecoins can improve efficiency by lowering payment costs and speeding up transactions. Some countries have already moved to regulate them. Brazil has brought stablecoin operators under anti-money-laundering rules and set caps on overseas remittances. Stronger macroeconomic policy could also help curb rising dependence on the dollar.

Still, regulatory gaps and slow international coordination remain a source of uncertainty. The governor of the Bank of England, who chairs the Financial Stability Board, said progress toward a global regulatory framework has been slower than expected. Without international standards, cross-border fund flows exploiting differences in national rules could increase further.

A key question now is how quickly stablecoins are absorbed into the regulated financial system and how governments respond. Central banks are developing alternative digital payment tools, including tokenized deposits. Emerging markets face a policy test in balancing confidence in their currencies with the need to maintain capital controls.

Kim Joo-wan, Hankyung.com reporter, kjwan@hankyung.com