Stablecoins tied to domestic currencies may not reduce dependence on dollar-backed tokens as intended and could instead make it easier for users to move into digital dollars, according to the International Monetary Fund’s First Deputy Managing Director Dan Katz.
Speaking Friday at the University of Cape Town, Katz said the issue arises when local-currency and dollar stablecoins run on the same blockchain networks, allowing users to switch between them through decentralized exchanges, liquidity pools or peer-to-peer transactions.
Shared rails could lower barriers to dollar access
Katz said that once both types of tokens circulate on common infrastructure, conversion between them can happen outside the traditional channels typically used for foreign exchange. That could make the path from a domestic digital token to a dollar-denominated one faster and easier.
He warned that such a shift could pull foreign-exchange activity away from banks and currency dealers. In his view, that matters because the friction in those conventional systems has also given authorities ways to observe and manage capital flows.
Why users may still prefer dollar-backed tokens
According to Katz, local stablecoins could in this way end up accelerating adoption of foreign-exchange stablecoins rather than containing it. He said it remains too early to draw firm conclusions, but pointed to practical reasons users may choose digital dollars over local alternatives.
Those reasons include deeper liquidity, stronger network effects and broader acceptance across platforms and borders. If those advantages persist, a domestic-currency stablecoin may serve less as a substitute for dollar exposure than as another route into it.
South Africa as an early example
Katz referenced South Africa in his remarks, saying dollar-backed stablecoins there have seen only limited traction so far, while rand-linked tokens have attracted even less demand.
The comparison does not settle the broader debate, but it illustrates the concern that a local-currency token does not automatically generate stronger demand than an established dollar-linked option.
Risks differ across economies
Katz said the effects of stablecoin adoption are likely to vary from country to country. In economies that are already highly dollarized, stablecoins may mainly replace dollar holdings that already exist in other forms.
In countries where access to dollars is restricted and broader economic frameworks are weak, however, digital dollar tokens could add to demand for foreign currency rather than simply reshuffling it. That distinction, in his framing, is important for policymakers assessing the impact of new tokenized payment instruments.
Regulatory focus on entry and exchange points
As a policy response, Katz urged authorities to place key parts of the crypto transaction chain within regulatory frameworks. He specifically highlighted onramps, offramps and onchain exchange points.
That approach reflects the IMF official’s concern that if conversion between local and dollar stablecoins becomes seamless on shared blockchain rails, oversight may need to focus less on the token label itself and more on the places where users enter, exit and swap between systems.
Source: cointelegraph.com