Dollar-backed stablecoins may be opening a channel for users to move into US currency that is harder for governments to contain than traditional foreign-currency bank deposits, according to new research from the Bank for International Settlements.
The BIS study examined foreign-currency deposits and inflows into dollar-pegged stablecoins across more than 130 economies. Its central finding was that both forms of dollar exposure tend to rise when countries come under macroeconomic stress. But while bank-based dollarization is still shaped by capital controls and foreign-exchange restrictions, stablecoin activity appeared to be far less affected.
Digital dollarization outside banks
The researchers describe this pattern as a new form of “digital dollarization.” In their view, stablecoins can give households and businesses a way to shift savings and transactions into dollars without relying on the domestic banking system.
That distinction matters most in emerging markets, where local currencies may be more vulnerable and access to dependable financial services may be limited. In those settings, the study suggests, dollar-backed tokens could provide an alternative route into foreign-currency exposure even when official restrictions are in place.
Why capital controls may be less effective
According to the BIS, the weak response of stablecoin flows to capital controls and other FX measures likely reflects the fact that these assets circulate at least partly outside the traditional regulatory perimeter. That makes them different from foreign-currency deposits held through banks, which are easier for authorities to monitor and influence through existing policy tools.
The implication is not that stablecoins replace bank deposits in every case, but that they may reduce the effectiveness of frameworks built for conventional cross-border finance. If people and companies can move into dollar-linked tokens without passing through regulated banking channels, policymakers may find it harder to manage currency pressures using standard restrictions.
Risks to monetary sovereignty
The BIS says this development could weaken monetary sovereignty, particularly in countries already dealing with fragile currencies. A broader shift into digital dollars could make it more difficult for national authorities to preserve the role of local money in savings and payments.
At the same time, the study does not present stablecoins as the only concern. It also reviewed the longer-standing issue of deposit dollarization and found limited evidence that foreign-currency deposits, by themselves, significantly impair the transmission of monetary policy. However, the researchers did find that economies with higher levels of such deposits faced a somewhat greater risk of elevated inflation.
Policy tools may need to change
Taken together, the findings suggest that the regulatory approach used for bank deposits and conventional foreign-exchange controls may be less effective in a more tokenized financial system. The BIS argues that authorities may need additional tools to address financial-stability risks as stablecoins become more widely used.
The study stops short of claiming that stablecoins have already displaced traditional mechanisms of monetary control everywhere. Instead, it points to an emerging pattern: during episodes of macroeconomic stress, demand for dollar exposure rises, and stablecoins may offer a path that is harder to restrain than bank-based alternatives.
The BIS findings add to a broader policy debate over how digital representations of fiat currency interact with capital management, inflation risk and domestic financial control, especially in emerging markets where pressure to seek dollar alternatives can intensify quickly.
Source: cointelegraph.com