The International Monetary Fund says domestic stablecoins meant to defend national currencies could end up doing the opposite, smoothing the path from local money into digital dollars rather than slowing it down. Crypto.news reported on Aug. 9 that First Deputy Managing Director Dan Katz sketched out that possibility during an Aug. 7 speech at the University of Cape Town, framed around emerging market regulators weighing how stablecoins might reshape payments and cross-border currency demand. The argument turns on infrastructure that does not respect the distinctions local currency tokens are built to protect.
Why the IMF thinks local tokens could backfire
Katz’s core point is mechanical. Once a local currency stablecoin and a dollar stablecoin run on the same blockchain, a user can move from one to the other without ever approaching a bank, a licensed money changer, or a recognized foreign exchange counterparty. Decentralized exchanges and automated liquidity pools can list direct pairs between the two assets. Peer-to-peer transfers allow the same jump using only self-custody wallets. Crypto.news reported Katz as warning that in that setting local tokens “might even accelerate the adoption of FX stablecoins,” because they remove many of the friction points that regulators currently rely on to manage currency conversion.
The IMF’s caveat matters. The Fund has not presented dollarization through local stablecoins as certain, and Katz stressed during the speech that the magnitude of the effect will depend on the underlying economy. In countries where residents already hold meaningful dollar balances, digital dollars may largely substitute for cash and offshore deposits rather than expand total foreign currency demand. In economies with weaker macroeconomic frameworks or with capital controls that already struggle to bind, easier digital access could amplify the existing appetite for dollar assets, particularly during episodes of currency depreciation or high inflation.
The starting point is a dollar-heavy market
Any conversation about local stablecoins begins with the existing concentration of the market. Crypto.news, citing the IMF, reported that stablecoin market capitalization has hovered around $300 billion over the past year after nearly tripling between 2021 and 2025. Nearly 99 percent of those tokens remain dollar-denominated, a level of dominance that produces deep liquidity, broad exchange listings, and ready acceptance across payment platforms and corporate treasury operations. Local currency tokens, by construction, compete against network effects that took years to build and that benefit from incumbency in trading pairs, market makers, and regulatory familiarity.
South Africa as an early test
South Africa offers one of the few cases where data is already accumulating. Crypto.news reported that Katz pointed to South Africa as an example of how local stablecoins have struggled to gain traction even where dollar tokens have made visible inroads. Rand-linked tokens have so far attracted weaker demand than dollar-pegged alternatives, and Katz cautioned that it is “too early to draw firm conclusions” about whether that pattern will hold.
The underlying numbers come from the South African Reserve Bank’s Financial Stability Review, as cited by Crypto.news. Trading volumes for U.S. dollar stablecoins on domestic platforms rose from less than 4 billion rand in 2022 to almost 80 billion rand in the first ten months of 2025. South African authorities are simultaneously reassessing the country’s digital money framework, with greater emphasis on wholesale central bank digital currency use cases and clearer regulation of private digital assets. That makes the country a useful bellwether for whether a domestic token can carve out meaningful share, or whether dollar rails simply absorb the new demand.
What the BIS research adds
Bank for International Settlements work, also reported by Crypto.news, lines up with the IMF framing. A study looking at four dollar stablecoins and 27 fiat currencies found that more than 70 percent of cumulative net fiat inflows into those tokens came from non-dollar currencies, suggesting that dollar stablecoins are functioning as a destination rather than a closed loop. Researchers also flagged links between stablecoin demand, currency depreciation, and pricing differences between onchain foreign exchange and traditional markets. Crucially for the policy debate, the BIS reported that stablecoin inflows looked broadly similar across economies with and without restrictions on cross-border stablecoin use, raising questions about how effective capital flow controls can remain when transactions run through self-hosted wallets on open blockchains.
Policy responses focused on conversion gateways
The IMF is not pushing for a universal crackdown on foreign stablecoins. Crypto.news reported that Katz argued instead for risk-based policy, anchored at the points where digital assets meet traditional finance. Onramps and offramps, including exchanges, custodians, and payment companies that convert between fiat and tokens, remain the most practical place to apply customer identification, transaction monitoring, and reporting obligations. Regulators are also being urged to look at onchain exchange points where local and dollar tokens can be swapped directly, and to consider whether existing foreign exchange and capital flow rules still bite once those venues become the dominant route.
Cross-border cooperation and improved data form the third leg of the recommendation. Katz said the IMF is contributing to the G20 Data Gaps Initiative to close measurement holes around digital asset flows while helping member countries update their regulatory frameworks. Crypto.news noted that the Fund also pointed to forthcoming research suggesting stablecoin transfers may cost less than the roughly 6.5 percent global average for remittances, although conversion fees and exchange rate spreads can erode those savings.
Analysis: a narrow window for local stablecoins
The political case for local currency stablecoins rests on the idea that tokenized versions of a national unit of account will keep digital finance tied to domestic monetary sovereignty. The IMF framing, together with the BIS findings, suggests that case is fragile. If local tokens simply sit one swap away from dollar tokens on the same rails, the policy effect looks closer to widening the on-ramp to dollarization than to blocking it. Emerging markets that want a defensive tool may need to combine local issuance with tight controls on conversion venues, or accept that the IMF diagnosis of digital dollarization will keep gaining weight.