The strong push by the United States to develop stablecoins is raising collective alarm among global central bank officials. Several top financial policymakers have warned that the rapid expansion of US dollar-pegged stablecoins will heighten the risk of "dollarization" in emerging market economies, undermining their monetary sovereignty and capital control capabilities, while also facilitating criminal activities such as money laundering and tax evasion.
Speaking in Japan on Monday, Pablo Hernández de Cos, Governor of the Bank for International Settlements (BIS), stated that stablecoins "pose serious risks to financial integrity and can foster regulatory circumvention." He cautioned that their rapid adoption could make it significantly harder for emerging markets and developing countries to maintain capital controls.
Bank of England Governor Andrew Bailey, speaking in Washington, expressed significant concern about the extent to which stablecoins are permeating and substituting for domestic currencies. He noted that international progress in establishing regulatory frameworks for stablecoins has noticeably slowed down.
These warnings come as the global stablecoin market has reached a valuation of $315 billion, with approximately 98% of these assets pegged to the US dollar. Supportive policies from the Trump administration for digital assets, coupled with the passage of the "Genius Act" by the US Congress last year, are providing a regulatory foundation for further market expansion.
The threat stablecoins pose to the monetary sovereignty of emerging markets was a key topic of discussion among senior officials during last week's annual meetings of the International Monetary Fund (IMF) and the World Bank in Washington.
Tobias Adrian, Director of the IMF's Monetary and Capital Markets Department, told the Financial Times that in some emerging market nations, dollar stablecoins already account for a "significant share of payments, including cross-border payments." While acknowledging the advantages of stablecoins for cross-border payments, such as speed and lower cost, he highlighted the primary challenge: "The big challenge is dollarization. For central banks, this can be a threat to monetary sovereignty."
Pablo Hernández de Cos further elaborated that the proliferation of stablecoins will intensify "dollarization risks" in emerging markets and create new channels for evading capital controls. Citing estimates, he also noted that stablecoins now account for the majority of illicit transactions within the crypto ecosystem, and their growing use "opens new avenues for tax evasion."
Reza Baqir, former Governor of the State Bank of Pakistan and now with consultancy Alvarez & Marsal, stated, "Anything that can potentially affect capital controls worries me immensely."
The momentum of stablecoin adoption in emerging markets is significant. A growing number of residents in these economies are using dollar stablecoins as tools to hedge against local currency depreciation, avoid high inflation, and circumvent international payment restrictions.
Analysts at Standard Chartered estimate that dollar stablecoin savings held by residents in emerging markets could grow from $173 billion at the end of last year to $1.22 trillion by the end of 2028—although this would still represent only about 2% of total bank deposits in these countries.
Standard Chartered anticipates the strongest growth will be concentrated in regions that have recently experienced balance of payments crises or are under IMF stabilization programs, including Egypt, Pakistan, and Bangladesh.
In the face of rapid stablecoin expansion, global regulatory coordination has lagged. Andrew Bailey, who also chairs the Financial Stability Board, admitted that the pace of international efforts to create unified rules for stablecoins has slowed. "If you'd asked me a year ago, I would have said we're moving fast. But I think this is an issue we're going to have to face quite soon," he remarked.
Concurrently, the Financial Action Task Force (FATF), the global anti-money laundering watchdog, warned in a March report that stablecoins are "attractive to criminals," noting that virtual assets are increasingly becoming the "primary method for laundering proceeds from ransomware, phishing, and other cybercrimes."
National responses have been varied. Brazil has amended its legislation to bring stablecoin providers under banking anti-money laundering compliance requirements and has set a $100,000 cap on many cross-border transfers.
In contrast, Dan Katz, a former US Treasury Chief of Staff and current Deputy Director at the IMF, holds a more optimistic view. He believes stablecoins can enhance competition and reduce costs in the payments sector and suggests that countries can counter rising dollarization pressures by "improving their macroeconomic frameworks."
The BIS, a forum for many of the world's central banks, has long maintained a cautious stance towards stablecoins. Last year, the BIS pointed out that this new form of digital cash "performs poorly" on key criteria necessary to function as real money.
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