• The International Monetary Fund stated that “many stablecoins do not have a true independence from the U.S. dollar and could become private dollar systems.”
• The IMF warned that the “global adoption of dollar-linked stablecoins could undermine central banks’ monetary control.”
The International Monetary Fund released a report that questioned the independence of stablecoins from the traditional fiat system. The IMF stated that nearly all major stablecoins are still tied to the U.S. dollar and that they rely on short-term dollar instruments. Many of the stablecoin issuers hold large amounts of U.S. Treasury bills to collateralize their stablecoin liabilities. This indicates that stablecoins are simply dollar channels and do not displace dollars in the global financial system
Stablecoin Growth Concerns
The IMF stated that the stablecoin phenomenon could develop into a “private dollar warehouse” system. It stated that stablecoins could develop into a system that distributes dollars in a manner that is not part of the traditional banking system. The IMF expressed that this could make it more difficult for central banks to manage the money supply. In nations with weak currencies, the use of stablecoins could substitute for the local currency.
The current market size of stablecoins has surpassed the total value of more than hundreds of billions of US dollars. The leading stablecoins pegged to the US dollar are USDC and USDT. The IMF identified the cross-border transactions of stablecoins as an increasing capital flow that moves beyond the regulated framework
This trend may affect the measures of capital controls and foreign exchange interventions. The IMF’s analysts stated that the private emission of stablecoins may lead to the fragmentation of payment systems without interoperability. They further clarified that the use of stablecoins that operate outside the regulatory framework may increase the risks of exchange rate volatility.
Implications for Monetary Policy and Financial Stability
Traditionally, central banks use changes in the policy rate and reserves to control inflation and liquidity. The adoption of stablecoins could weaken the pass-through effect of these tools. The use of dollar-linked stablecoins in vulnerable markets could lead to a reduction in the use of local currencies. The IMF study showed that stablecoins do not have deposit insurance or a lender of last resort. This could increase financial instability during times of stress
The IMF called for international regulatory cooperation to ensure a common set of rules. A common set of rules could help to close the innovation gap and ensure financial system stability. There may be a need for closer supervision to ensure that stablecoin flows are properly tracked.
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