IMF Working Paper: Dollar Stablecoins Facilitate Currency Exchange, but May Also Amplify Runs
A new IMF working paper finds that in economies with fixed or heavily managed exchange rates and constrained foreign exchange supply, dollar-pegged stablecoins can both lower the barrier to accessing foreign currency and heighten exchange rate pressures.
Stablecoins as a Double-Edged Sword
A working paper from the International Monetary Fund (IMF) highlights that dollar stablecoins, by offering transparent and high-frequency trading prices, can help reveal true foreign exchange supply and demand. However, when the local currency is under significant pressure, these same price signals may synchronize market expectations and currency exchange behavior, driving a coordinated exit from the domestic currency and amplifying capital outflows and the risk of a currency run.
Policy Implications: State-Dependent Regulation
The paper recommends a state-dependent regulatory approach: during normal times, preserve the low-cost foreign exchange channel that stablecoins provide; during periods of market stress, implement temporary, targeted measures to address abnormal or run-like capital flows.
