Stablecoin Adoption Could Stifle Central Bank Control, IMF Warns in New Assessment

• IMF warns stablecoin growth may weaken monetary sovereignty through currency substitution.
• Dollar-backed tokens dominate the market, limiting central banks’ policy influence in emerging regions.
• CBDCs could face adoption challenges as foreign stablecoins gain ground in digital payments.

Stablecoins’ expansion across emerging and developing economies is drawing heightened scrutiny from global financial authorities, with a new International Monetary Fund report warning that widespread use of foreign currency-denominated tokens could weaken monetary sovereignty.

The 56-page publication, released Thursday, outlines how dollar-linked digital assets are gaining traction in regions grappling with inflation and limited access to stable financial infrastructure, possibly shifting economic activity away from local currencies and complicating the work of central banks.

IMF Flags Risks of Currency Substitution as Dollar Stablecoins Dominate

The IMF identified “currency substitution” as a principal concern, noting that stablecoins can circulate quickly through smartphones and internet-based payment channels, bypassing traditional banking systems.

Such velocity, the organization said, differs from historical patterns, where households typically needed physical U.S. cash or foreign-currency accounts to access dollars. If stablecoin use becomes entrenched, domestic authorities would have reduced influence over liquidity conditions and interest-rate transmission.

Data cited in the report shows that stablecoins tied to the U.S. dollar account for 97% of the sector’s $311 billion valuation. Meanwhile, euro-denominated tokens total roughly $675 million, and yen-linked assets remain minimal at approximately $15 million.

The IMF noted that stablecoin balances are rising relative to foreign-exchange deposits in Africa, the Middle East, Latin America, and the Caribbean, deposits that often help central banks manage monetary policy. According to the organization, households in high-inflation environments frequently adopt stablecoins as a practical response to currency instability.

CBDCs May Face Competitive Pressure Amid Expanding Digital Payments

The report also outlines competitive risks for central bank digital currencies, stating that domestic CBDC initiatives may struggle to gain traction if foreign stablecoins become widely used for payments. Unlike privately issued tokens, CBDCs represent sovereign money managed by national authorities. The IMF recommended that governments establish rules preventing digital assets from gaining legal-tender status, arguing that such recognition could constrain a state’s ability to reject non-sovereign payment instruments.

Central banks outside the IMF have voiced similar concerns. In November, the European Central Bank warned that strong growth in dollar-linked stablecoins could draw deposits away from commercial banks, creating more volatile funding conditions.

Yet the IMF report also acknowledges that some policymakers see benefits. When the United States approved stablecoin legislation earlier this year, Treasury Secretary Scott Bessent emphasized that expanding demand for government debt, used to back tokens, could lower borrowing costs while broadening global participation in dollar-based digital systems.