The First Deputy Managing Director of the International Monetary Fund (IMF) has highlighted the risks associated with the growing prevalence of dollar-linked stablecoins. He stated that this trend could limit the flexibility of monetary policy and increase existing risks to financial stability.
“Dollarization can have long-term macroeconomic consequences. Once it becomes entrenched, it typically becomes an extremely stable phenomenon, even after the conditions that caused it no longer exist,” the IMF official noted.
He also pointed out that dollar-backed stablecoins are significantly different from previous forms of dollarization. Their main feature is that they can spread rapidly through smartphones and digital platforms.
According to the IMF official, the widespread adoption of such digital assets could enhance the volatility of capital flows, exert additional pressure on exchange rates during macroeconomic stresses, and lead to financial instability in several countries.
He also emphasized that in countries where access to the dollar is limited and macroeconomic fundamentals are weak, the widespread use of stablecoins could lead to a net increase in the volume of foreign currency assets and a rise in the level of dollarization in the economy.
