Domestic Stablecoins Could Boost Demand for Dollar-Backed Tokens: IMF

International Monetary Fund (IMF) First Deputy Managing Director Dan Katz made a significant assessment, suggesting that stablecoins pegged to local currencies could paradoxically increase demand for dollar-backed digital assets. Katz highlighted that this paradoxical outcome might be an unintended consequence of countries issuing stablecoins tied to their domestic currencies, initiating a new debate on financial stability for emerging markets.

During his speech at the University of Cape Town on August 7, 2026, Dan Katz elaborated on the primary reasons users favor dollar-backed stablecoins. This preference stems from the superior liquidity, robust network effects, and broad cross-border acceptance of dollar-pegged assets. According to Katz, the operation of both local and dollar stablecoins on the same blockchain infrastructure facilitates easy conversion between them via decentralized exchanges, liquidity pools, or peer-to-peer swaps.

This development could lead to significant shifts in traditional financial markets. Katz noted that foreign exchange activities might migrate from conventional banks and FX dealers to on-chain markets. Such a shift could complicate authorities' ability to monitor and manage capital flows, potentially weakening oversight mechanisms. The IMF has expressed concerns that the growing market capitalization of dollar-backed stablecoins, exceeding $300 billion with 97% pegged to the U.S. dollar, could undermine monetary sovereignty in vulnerable economies.

For emerging economies, this situation presents substantial risks. Local-currency stablecoins could lead to the substitution of national currencies with digital dollars, thereby diminishing central banks' control over monetary policy. This could result in deposit flight from local banks and increased demand for foreign currency. The case of South Africa, where rand-linked tokens have garnered even less interest than dollar-backed tokens, supports this trend.

Analysts and market experts emphasize the need for regulatory frameworks to adapt to these new dynamics in the coming period. The IMF urges authorities to integrate on-ramps, off-ramps, and on-chain exchange points into their regulatory frameworks. It warns that regulatory fragmentation could lead to unregulated stablecoin circulation, posing risks to global financial stability. In this context, the importance of international cooperation and standardized approaches will increasingly grow.