Dollar Stablecoins Threaten Monetary Sovereignty: IMF Warns

In a new paper, the IMF argues that the rapid rise of dollar stablecoins could reshape payments and finance in ways that challenge monetary sovereignty in weaker economies.

IMF flags systemic risks from surging stablecoin market

The International Monetary Fund has released a study titled “Understanding Stablecoins” warning that large foreign-currency tokens can accelerate currency substitution and weaken monetary control, especially in fragile states. Moreover, the paper emphasizes that these risks are no longer hypothetical.

According to the IMF, global stablecoin capitalization now exceeds $300 billion, with around 97 percent of outstanding tokens referencing the U.S. dollar. Influence in this market is highly concentrated among major issuers such as Tether and Circle, which play a growing role in cross-border flows.

The fund notes that foreign stablecoins can easily bypass domestic banks and payment rails by operating over the internet and smartphones. However, their ability to reach users directly via unhosted wallets means they can quickly penetrate local economies without relying on traditional financial intermediaries.

Currency substitution and loss of monetary control

The paper warns that widespread use of foreign-currency stablecoins could trigger significant currency substitution and risks to domestic financial stability. That said, the IMF stresses that the danger is most acute in countries already facing high inflation, weak institutions, or low confidence in the local currency.

If a large share of domestic payments and savings migrates into U.S. dollar-denominated tokens, central banks may lose traction over liquidity conditions, credit creation, and the transmission of interest-rate decisions. Moreover, savings held offshore in these instruments can reduce the effectiveness of capital controls and foreign-exchange interventions.

The IMF cautions that, in such a scenario, late-launched public sector solutions like a central bank digital currency may struggle to displace entrenched private tokens. Once network effects take hold in retail payments, cross-border remittances, and merchant settlement, users may resist switching back to official digital money.

Dollar stablecoins as a monetary sovereignty challenge

The study explicitly frames major dollar stablecoins as a challenge to monetary sovereignty rather than as a niche payments innovation. In the IMF’s view, these tokens now belong in the same policy conversation as capital controls, foreign-exchange intervention frameworks, and the design of central bank digital currencies.

According to the fund, if domestic residents increasingly save and transact in foreign-denominated tokens, national authorities risk losing control over key levers of macroeconomic policy. Furthermore, this erosion of control could complicate crisis management and reduce the effectiveness of standard stabilization tools.

The publication builds on recent country-level consultations in Latin America, Sub-Saharan Africa, and parts of Eastern Europe, where IMF staff have already flagged the rapid, unregulated spread of U.S. dollar tokens as a pressing policy issue. These regional experiences informed the paper’s global recommendations.

IMF calls for harmonized global stablecoin regulation

On the policy front, the IMF aligns itself with the G20 and the Financial Stability Board by endorsing the “same activity, same risk, same regulation” principle for digital assets. Moreover, the fund argues that fragmented approaches will invite regulatory arbitrage and increase systemic vulnerabilities.

The paper calls for a robust framework of global stablecoin regulation, including harmonized legal definitions of stablecoins across jurisdictions. It also urges strict reserve and redemption standards, along with granular disclosure of reserve composition and custody arrangements, to improve stablecoin reserve transparency and investor confidence.

To avoid issuers exploiting jurisdictional gaps, the IMF recommends cross-border supervisory colleges and closer cooperation among regulators. That said, the fund notes that achieving effective regulation supervision and oversight of global stablecoin arrangements will require significant political will and technical coordination.

High-risk structures and potential financial contagion

The IMF highlights particularly risky designs such as algorithmic or partially collateralized stablecoins, which it says are vulnerable to sudden runs. When confidence falters, sharp redemptions can transmit volatility not only into broader crypto markets but also into local banking systems and money markets.

By contrast, the paper views fully backed fiat-referenced coins, which hold short-dated government securities and cash at regulated institutions, as less fragile on a microprudential basis. However, even these designs can pose macro-financial vulnerabilities for smaller states when they create large, concentrated exposures to a single foreign currency.

The fund warns that, without consistent rules, the rapid growth of foreign-denominated tokens could amplify threats to monetary sovereignty and heighten the risk of cross border financial shocks. Moreover, the same mechanisms that enable fast, low-cost transfers can accelerate the transmission of crises across borders.

Fragmented rules and the shadow banking analogy

The paper observes that regulatory frameworks remain fragmented, citing the European Union’s Markets in Crypto-Assets regulation, Japan’s dedicated stablecoin rules, and various U.S. state-level regimes as examples of divergent approaches. As a result, issuers may domicile in the most lenient jurisdictions while serving users globally.

To counter this, the IMF urges authorities to coordinate licensing regimes, reserve rules, anti-money-laundering and countering the financing of terrorism requirements, and clear redemption rights. However, the fund warns that failure to do so could recreate the type of opaque, cross-border risk buildup seen in the shadow banking system before the 2008 financial crisis.

In its conclusion, the IMF stresses that, without coherent international standards, U.S. dollar stablecoins and other foreign-denominated tokens could bypass national safeguards, destabilize vulnerable economies, and transmit financial shocks at high speed. The fund’s message is that getting stablecoin regulation right is now a core task of modern monetary and financial policy.