Local stablecoins may accelerate rather than prevent dollarization

Local currency stablecoins: A promoter or an antidote to digital dollarization?

Local currency stablecoins were once seen as a digital alternative to holding U.S. dollars. However, available evidence points in the opposite direction. In environments where users face currency devaluation or capital flow restrictions, local stablecoins often tend to tap into U.S. dollar liquidity rather than replace it. This architecture, combined with user behavior, may accelerate rather than prevent dollarization.

According to data from the Bank for International Settlements, as of early April 2026, about 98% of existing stablecoins are denominated in US dollars, with a global market value of close to US$315 billion, and an annual on-chain transaction volume of approximately US$35 trillion. At the same time, evidence from various countries shows that households and businesses are already using U.S. dollar stablecoins as digital dollars. The International Monetary Fund's 2026 employee report on Nigeria calls this development "digital dollarization" and points out that the market is dominated by the USDT and USDC, and its inflows are close to recorded total remittances.

Chain Analytics found that as of June 2024, Argentina's stablecoin trading volume accounted for 61.8% of its total cryptocurrency trading, ahead of Brazil's 59.8%, and well above the global average of approximately 44.7%. In Turkey, from April 2023 to March 2024, the trading volume of fiat currencies and stablecoins accounted for approximately 4.3% of its GDP, which further indicates that in an environment facing foreign exchange pressure, stablecoins have become an important channel for obtaining U.S. dollars. These are not marginal use cases.

In contrast, local stablecoins remain small and often coexist with, rather than replace, US dollar liquidity. In Brazil, native tokens linked to the Brazilian real will grow rapidly between 2024 and 2025, but it is estimated that their circulation value is only about US$23 million at some point in time, and their liquidity is usually paired directly with USDC or USDT on decentralized exchanges. The International Monetary Fund reported that Nigeria's regulated stablecoin cNGN linked to Naira was launched in early 2025. As of early 2025, its chain footprint was negligible, with only about 66 million cNGN (worth nearly US$44,000), involving 74 chain transactions.

How the US dollar channel has tightened since 2024

Substantial changes have occurred not only in user preferences, but also in the underlying infrastructure. In both regulated and unregulated markets, most liquidity is routed through stablecoins anchored to the U.S. dollar. The Bank for International Settlements pointed out that the U.S. dollar anchor currency dominates, while the market value of regulated tokens pegged to the yen is less than 0.01% of the U.S. dollar anchor currency, and emphasized that research shows that the flow of stablecoins can spill over and affect foreign exchange pricing.

At the same time, major stablecoin issuers have become big buyers of short-term safe assets in the United States. A Bank for International Settlements working paper estimates that issuers held more than $120 billion in U.S. Treasury bonds as of around March 2025 and purchased approximately $35 billion in treasury bonds in 2025. The paper also found that concentrated capital inflows could affect short-term yields, and a $3.5 billion inflow could immediately significantly lower the yield of three-month Treasury bonds. This connection exacerbates the gravitational effect of dollar liquidity through crypto channels.

Inferred: When local stablecoins are integrated through pools paired with USDT or USDC, they inherit the US dollar as the unit of account and settlement benchmark. Even if local tokens improve fiat currency access or compliance, their most effective liquidity path usually requires crossing a dollar bridge. During stressful times, the more users rely on these bridges, the more likely domestic currency substitution is to accelerate.

Evidence of digital dollarization

Dollar share of stablecoins: approximately 98%
Global stablecoins market value: approximately US$315 billion (Early April 2026)
Annual on-chain stablecoin trading volume: approximately US$35 trillion
Argentina's stablecoin share in cryptocurrency trading volume: 61.8%
Turkish fiat currency and stablecoin trading volume as a proportion of GDP: approximately 4.3%(April 2023 to March 2024)
Early on-chain scale of cNGN in Nigeria: approximately 66 million cNGN (approximately US$44,000), 74 transactions

In addition to these snapshot data, Chain Analytics reported that Argentine retail-sized stablecoin receipts grew faster than any other asset class, suggesting that the household level is hedging against peso depreciation. A summary of Chain Analytics 'data shows that in Turkey, stablecoin trading volumes have become quite large at the macro level, which is rare for a cryptocurrency category dominated by retail.

In Nigeria, the IMF's assessment is clear. The dollar-denominated stablecoins "actually enable households and businesses to store and trade foreign currency outside the domestic banking system" and their inflows have grown to close to recorded levels of remittances. At the same time, the country's tokens linked to naira remained small in early data. This is the pattern that policymakers are worried about.

Impact on monetary policy and banks

When users are able to hold and transfer U.S. dollar stablecoins outside domestic banks, currency substitution may occur outside the balance sheet. The International Monetary Fund's Nigeria report points out that this is already happening in practice.

Extrapolation: Local stablecoins that are closely interconnected with USDT or USDC may inadvertently normalize the value store function of the US dollar, even if daily pricing is still carried out in local currency units. During times of stress, the path of least resistance is usually to the deepest pool, and this is almost always dollar liquidity. Over time, this could weaken the currency transmission mechanism, complicate foreign exchange management, and erode the deposit base as users shift working capital to digital dollars.

Market narrative: Some regulators view local stablecoins as a way to modernize payments while maintaining value onshore. The challenge lies in scale and incentives. If onshore token transactions are thin or exit costs are high, and the dollar pool is deep and instantly accessible, users will arbitrate and flow to the latter. The result is that during the withdrawal period, even though local tokens are normally available for payroll payments or merchant settlements, it becomes a one-way valve to the U.S. dollar channel.

Impact on market infrastructure and safe assets

stablecoin issuers hold large amounts of treasury bonds and can affect short-term yields at the data level. This connection ties the cryptocurrency layer to the U.S. public debt market. As the U.S. dollar stablecoin expands in size, demand for treasury bonds may increase, enhancing the depth and convenience of U.S. dollar liquidity relative to local bill collateral.

The analysis of the Bank for International Settlements also mentioned that when stablecoin inflows surge, parity gaps and foreign exchange spillover effects will occur. Extrapolation: During periods of pressure on local currencies, flows that start with domestic tokens but are routed through USDT or USDC may amplify currency substitution and transmit pressure to the onshore foreign exchange market. The more liquidity intermediated through the dollar-denominated pool, the more sensitive local conditions will be to dollar cycle dynamics.

Practical impact on builders and exchanges: If the liquidity of local stablecoins relies on U.S. dollar trading pairs, then institutional design should assume that U.S. dollar price discovery dominates. Hedging, money management and compliance processes need to view the dollar channel as a systemic infrastructure rather than an optional bridge.

Best prospects for local stablecoins

Local stablecoins are growing in some markets. In Brazil, the trading volume of native Brazilian real stablecoins increased by approximately 7.6 times year-on-year from July 2024 to July 2025, and the average transaction size increased by approximately 330% to approximately 12,600 Brazilian reais. These are encouraging signals for the market fit of domestic payment and settlement products.

Market narrative: Well-designed local stablecoins can support merchant acceptance, payroll, tax payments, and regulated legal currency deposit and withdrawal channels. It can also reduce foreign exchange risk limited to domestic flows and improve auditability relative to cash. If central banks and regulators can coordinate licensing, reserve and disclosure requirements, onshore tokens could support digital commerce without immediate recourse to the U.S. dollar.

But the resistance is obvious. The Bank for International Settlements emphasized that it is difficult for locally anchored regulated tokens to compete for size with US dollar tokens, citing the market value of Yen-anchored tokens being less than 0.01% of the US dollar anchored token supply as an example. In Nigeria, the early footprint of cNGN was negligible compared to the flow of dollar stablecoins. In Brazil, many Brazilian real pools are directly paired with USDC or USDT, which effectively anchors price discovery to the US dollar, even when the unit of account is the Brazilian real.

Opinion: The most realistic way for local stablecoins to fight dollarization is to become so useful to domestic business that users hold their balances by default and only occasionally bridge to the U.S. dollar. This requires deep local liquidity, reliable reserves, and intensive real-world economic integration. Without these, local tokens may become a convenient gateway to digital dollars rather than a substitute.

Signals that confirm or weaken this argument

The following specific indicators can verify or challenge the view that "local stablecoins are accelerating dollarization":

The share of local anchors versus U.S. dollar anchors in centralized exchange and on-chain trading volumes, especially during times of local foreign exchange pressure. Existing benchmark data tends to be anchored in the US dollar.

The composition of liquidity on mainly decentralized exchanges. If local stablecoin pools shift from pairing with USDC or USDT to deeply cocurrency routing, that would weaken the dollarization argument. Evidence so far shows that there are frequent dollar pairs in Brazil.

Official disclosures by the central bank and the International Monetary Fund on the use of domestic stablecoins. Nigeria's report that dollar stablecoin inflows are close to recorded remittance levels is a strong confirmation signal.

Changes in the parity gap and foreign exchange market spillover effects associated with stablecoin inflows.

Issuer reserve disclosures and treasury bond holdings reflect the continued expansion of the dollar stablecoin.

The growth of use cases for local tokens in the real economy, such as payroll payments, merchant settlements, or tax payments, has led to users continuing to hold balances in local currency units rather than immediately bridging to USDT or USDC.

Editor's conclusion

The focus of stablecoins is on the U.S. dollar and the infrastructure it supports. Verified data shows that in countries facing currency fluctuations, users have relied heavily on U.S. dollar anchored coins, while local tokens are still small and are usually routed through U.S. dollar transaction pairs. Unless local stablecoins can achieve deep, independent liquidity and provide convincing practicality to domestic businesses, they are more likely to consolidate rather than reverse digital dollarization.

This article is for reference only and does not constitute legal, tax, investment, financial or other advice.