IMF Cautions That Stablecoins May Speed Up Currency Replacement in Fragile Economies

Risks of Stablecoins: The IMF warns that dollar-denominated stablecoins could accelerate currency substitution in countries with weak monetary systems, undermining central banks' control over capital flows and increasing economic instability.

Market Growth: The global stablecoin market has surpassed $300 billion, with dollar-pegged tokens making up 97% of the sector, while trading volumes surged to $23 trillion in 2024, indicating significant growth and adoption, particularly in Asia and regions like Africa and Latin America.

Regulatory Challenges: The IMF highlights inconsistent regulations across major jurisdictions regarding stablecoin issuance and reserve management, which may lead to regulatory arbitrage and complicate crisis monitoring and policymaking.

Potential Benefits: Despite the risks, the IMF acknowledges that stablecoins could enhance competition, reduce payment costs, and promote financial inclusion if supported by robust regulatory frameworks, emphasizing the need for coordinated international action.