International Monetary Fund First Deputy Managing Director Dan Katz raised concerns on August 7 about the unintended consequences of local stablecoins designed to strengthen national currencies. Speaking at the University of Cape Town, Katz warned that these domestic tokens could accelerate dollar-token adoption by making onchain currency conversion easier globally. According to reports from the IMF, Katz explained that interoperable local-currency stablecoins could unintentionally expand dollar stablecoin use by enabling on-chain FX via shared blockchain infrastructure, DEXs, liquidity pools and P2P channels, increasing dollar access in FX-constrained markets. The concern centers on how local currency and dollar stablecoins operating on the same blockchain infrastructure can enable users to swap between them through decentralized exchanges, liquidity pools, or peer-to-peer transactions instead of relying exclusively on banks and conventional currency dealers. As per the IMF, a stablecoin linked to a local currency may be designed to keep users inside the domestic monetary system, but if users can easily exchange that token for a dollar-backed stablecoin on a blockchain, they may gain a digital route into foreign currency markets without relying on traditional banks. Katz described this as a paradox in which a defence against the dollar becomes a route toward it, emphasizing how local-currency stablecoins might even accelerate the adoption of foreign exchange stablecoins.
The IMF's assessment reveals a stablecoin market capitalization of approximately $315 billion as of early April 2026, with nearly 98% of stablecoins remaining dollar-denominated, giving dollar-backed tokens stronger liquidity and broader acceptance across exchanges, payment platforms, and international markets. The Bank for International Settlements estimates that stablecoins generated approximately $35 trillion in annual transaction volume in 2025, but only about $390 billion represented payment-related flows tied to the real economy. This dominance creates significant network effects that domestic currency stablecoins struggle to match, even when regulators or companies introduce them as alternatives. South Africa provides an early example, with dollar stablecoins gaining only limited traction while rand-denominated tokens have attracted even weaker demand. The distinction between total blockchain volume and actual payment activity is crucial, as much of the $35 trillion volume consists of on-chain trading and cryptocurrency ecosystem activity rather than real-world economic transactions. Tether (USDT), the largest dollar-pegged stablecoin, traded at $0.9993 at the time of publication, with its market value standing near $183.12 billion, making it the third-largest crypto asset by market capitalization.
According to the South African Reserve Bank's Financial Stability Review, trading volumes for U.S. dollar stablecoins on domestic platforms rose from less than 4 billion rand in 2022 to almost 80 billion rand during the first ten months of 2025. As reported by the IMF, this growth in dollar-pegged token activity demonstrates the increasing adoption of digital dollarization in the country. South African authorities have been reassessing the country's digital money framework while placing greater emphasis on wholesale central bank digital currency use cases and regulation of private digital assets. The stablecoin market introduces another layer where users can potentially move between rand-linked assets and dollar-linked tokens without depending entirely on conventional bank infrastructure, raising questions about whether a domestic stablecoin can compete effectively with global dollar stablecoins. Cross-border payments represent a significant opportunity, as stablecoins can move between blockchain addresses within minutes, potentially operating around the clock, creating meaningful efficiencies for businesses that need to move money internationally. The IMF notes that many users may favour dollar tokens because of their liquidity, network effects and acceptance across platforms and borders, with the scale advantage of dominant dollar tokens reinforcing these advantages.
The IMF recommends that regulators focus on bringing stablecoin onramps and offramps within regulatory frameworks, as these exchanges, custodians, and payment companies remain points where authorities can apply customer identification, transaction monitoring, and reporting requirements. According to the IMF, regulators may need to consider whether existing foreign exchange and capital flow rules remain effective where domestic and dollar stablecoins can be freely exchanged. Research from the Bank for International Settlements found that more than 70% of cumulative net fiat inflows into stablecoins came from non-dollar currencies, with self-hosted wallets and borderless blockchain transactions potentially reducing the effectiveness of conventional controls. The IMF has specifically noted that peer-to-peer transfers through unhosted wallets can fall outside traditional regulatory perimeters, as a user with an unhosted wallet can potentially transfer stablecoins directly to another wallet without using a bank as an intermediary. Katz called for bringing stablecoin deposits, withdrawals, and on-chain foreign-exchange routes under regulatory oversight to manage risks and ensure financial stability. He urged authorities to act before adoption outpaces oversight, emphasizing that data collection should not wait for perfect regulation and pointed to the potential role of artificial intelligence (AI) in speeding up adoption, noting that authorities should monitor these developments closely.
The IMF emphasizes that stablecoins will not affect every country in the same way, with different dollarization risks across emerging markets depending on domestic economic conditions. In economies where residents already hold substantial dollar amounts, stablecoins may primarily replace existing foreign currency deposits without materially increasing total foreign currency demand. However, in countries with restricted dollar access or weaker domestic currency confidence, easier access to digital dollars could increase foreign currency asset demand during periods of currency depreciation or high inflation. The institution has increasingly described stablecoins as a force that could introduce competitive pressure into monetary systems, potentially encouraging countries with weak fiscal and monetary frameworks to improve their policies. The technology essentially lowers the cost of choosing another currency, creating pressure on governments to improve the fundamentals supporting their domestic money. For countries with low inflation, credible institutions, deep capital markets and an efficient banking system, stablecoins may become another payment technology. For countries struggling with inflation and capital flight, they could become something far more consequential: a new channel through which citizens can choose their preferred currency. The IMF acknowledges that stablecoins can reduce payment costs, potentially offering savings over the roughly 6.5% average global remittance cost, though conversion charges and exchange rates can reduce these savings.
