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A senior International Monetary Fund official warned that domestic-currency stablecoins, designed to reduce reliance on dollar-backed tokens, could inadvertently accelerate demand for digital dollars. IMF First Deputy Managing Director Dan Katz made the remarks on Friday in a speech at the University of Cape Town, highlighting the interplay between local and foreign-currency stablecoins.
Katz explained that once local and dollar stablecoins operate on the same blockchain infrastructure, users can seamlessly convert between them through decentralized exchanges, liquidity pools, or peer-to-peer swaps. This ease of conversion, he argued, could shift foreign-exchange activity away from traditional banks and currency dealers, reducing the friction that currently gives authorities tools to monitor and manage capital flows. "In this way, local-currency stablecoins might even accelerate the adoption of FX stablecoins," he said.
The official pointed to South Africa as an illustrative case, where dollar-backed stablecoins have gained only limited traction and rand-linked tokens have attracted even less demand. While cautioning that it was too early to draw firm conclusions, Katz suggested that many users may favor dollar tokens due to their superior liquidity, network effects, and acceptance across platforms and borders.
The implications vary significantly by country, according to Katz. In highly dollarized economies, stablecoins may largely replace existing dollar holdings without increasing overall foreign-currency exposure. However, in nations where access to dollars is restricted and economic frameworks are weak, domestic stablecoins could actually boost demand for foreign currency, potentially amplifying currency runs.
Katz urged authorities to bring onramps, offramps, and onchain exchange points within regulatory frameworks rather than attempting to ban the technology outright. He emphasized that proactive regulation could help manage risks while still allowing innovation. The speech underscores a growing recognition among global financial policymakers that stablecoins, regardless of their currency denomination, are reshaping cross-border money movement in ways that demand careful oversight.
