IMF Flags Stablecoin Risks for Emerging Markets, But Scale Still Small

The IMF argues that USD-linked stablecoins might destabilize local currencies in more vulnerable emerging markets by facilitating currency substitution and rapid capital flight. In principle at least, nationals might bypass conventional banking channels and export dollars across borders via tokens such as USDT and USDC, weakening central bank control.

However, experts emphasize the market isn't big enough as of yet to pose systemic risks. Most stablecoins-around $264B combined-are mainly used for crypto trading and not macro hedging, remaining tiny versus global FX flows.

Emerging markets like Africa, Latin America, and parts of the Asia-Pacific have stablecoin adoption for payment and remittance purposes, but it constitutes only a small fraction of total financial flows. According to analysts, while theoretically, stablecoins could quicken the pace of "flight to USD," this is yet to take center stage as the dollar's entrenched global dominance and already-established capital channels still remain the main driver of macro moves.

???? Takeaway: Stablecoins are growing rapidly, and EM regulators should pay close attention-but systemic implications currently appear limited.

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