IMF: Stable currencies may ease the difficulty of obtaining foreign exchange, but may increase the r

Dollar pegged stablecoins: The "double-edged sword" of the foreign exchange channel

For countries that implement fixed or strictly managed exchange rate mechanisms, dollar-pegged stablecoins may make it easier for local residents to obtain foreign currency. However, new research from the International Monetary Fund warns that the same tool could exacerbate "runs" on local currencies during periods of severe stress.

In a working paper titled "Stabilocins and Vulnerability under a Fixed Exchange Rate Regime," economist Brandon Joel Tan used a model to analyze how stablecoins affect parallel foreign exchange markets when official access to the US dollar is limited. IMF analysis shows that stablecoin prices can be an unusually clear and real-time signal of the scarcity of the dollar-helping users obtain dollars in normal times, but when pressure builds, it can trigger coordinated actions to sell off the currency on a large scale.

Core Points

When banks or official foreign exchange channels are unable to meet demand, especially in economies with managed exchange rates, stablecoins can expand actual access to the U.S. dollar. Stabiloin pricing may become a high-frequency "benchmark" for US dollar demand in parallel foreign exchange markets. During currency crises, this visibility accelerates currency substitution, as many users simultaneously respond to increasing scarcity. IMF models suggest that regulators may consider setting temporary limits on abnormally large or panic-driven stablecoin transactions to reduce destabilizing feedback cycles.

Why stablecoins are crucial in a fixed exchange rate system

The IMF paper focuses on a common policy scenario: countries with fixed or tightly managed exchange rates and limited or rationed access to official dollars. In these cases, demand for foreign currency often exceeds supply from formal channels, pushing transactions into parallel markets. Tan's argument is that when local institutions are unable to provide dollars, stablecoins provide "dollar-like claims" that are more accessible to households and businesses than traditional cross-border routes. Importantly, stablecoins also create a widely watched price-a price that more consistently reflects changes in dollar demand than official mechanisms. When official exchange rates deviate significantly from market exchange rates, prices pegged to stablecoins can signal that the dollar is becoming scarce. IMF models suggest that this could prompt more users to sell their currencies and seek to preserve their value before conditions deteriorate further.

Parallel foreign exchange markets and the "price signal" effect

The paper emphasizes the role of anticipation and synchronicity. In a fixed-exchange-rate environment, people may already suspect that official U.S. dollar access channels cannot meet demand. By making dollar exposure more convenient and standardized, stablecoins can reduce friction when users try to hedge exchange rate risk. At the same time, the visibility of stablecoin prices may reduce the cost of coordinating runs. Tan's analysis points out that under severe monetary pressure, many users may abandon their local currencies at the same time-turning demand for stablecoins into a rapid self-reinforcing indicator of the crisis. This mechanism is different from a slow, gradual shift in preferences. The IMF framework believes that stablecoin prices are not just another trading venue; they can be a real-time reflection of scarcity, triggering decisions in advance.

Real-world models: stablecoin reference pricing and the "crypto cave"

The IMF's arguments are consistent with reports about how stablecoins are used in areas where official access to the dollar is restricted. Reports have described how stablecoins have been used as a workaround to local currency devaluation and capital controls. For example, there have been reports that retailers at Bolivian airports have used USDT as a reference price to label goods, while still accepting U.S. dollars or Bolivianos. This reference pricing suggests that stablecoins can serve as a practical yardstick when official exchange rates are unreliable or inaccessible. In 2024, there are also reports that Argentines use unofficial "crypto caves" to exchange pesos for dollar stablecoins at exchange rates closer to unofficial markets. The motivation is simple: as the peso depreciates and access to the dollar is restricted, stablecoins provide a way to preserve savings outside the official system.

Regulatory concerns: Risk of runs beyond hedging

Although stablecoins allow users to obtain foreign currency when local institutions cannot help, the IMF paper does not fully endorse it. Instead, it views stablecoins as a factor that could change the dynamics of foreign exchange pressure-especially in systems with fixed or tightly managed exchange rates. This caution echoes warnings from the broader financial stability community. The Financial Stability Board (FSB) has said that U.S. dollar stablecoins could expose emerging economies to the risk of currency substitution, weakening monetary policy and possible circumvention of capital flow measures. The FSB also urged lawmakers to assess where the industry is evolving and understand its liquidity and operational risks as stablecoins deepen their ties to the broader financial system. Against this backdrop, Tan's model suggests that regulators may need tools specifically tailored to times of crisis-such as setting temporary limits on abnormally large or panic-driven transactions-to weaken the feedback loop that may arise when demand for stablecoins accelerates in tandem with local currency pressure.

What investors and builders should pay attention to

IMF research highlights a key contradiction: When official dollars are rationed, stablecoins can be a stable source of access, but once stablecoins pricing becomes a quick signal of scarcity, they can also become amplifiers of crisis. Traders, liquidity providers, and policymakers should pay attention to the use of stablecoins under foreign exchange pressure-especially whether such use is stable and hedge-oriented, or whether it shifts to simultaneous withdrawals during periods of sharp currency fluctuations.