Dollar stablecoins could improve FX access but amplify currency runs: IMF

An IMF working paper says US dollar stablecoins can improve access to foreign currency but may also help coordinate exits from local currencies during periods of severe exchange-rate stress.

US dollar stablecoins could improve access to foreign currency in economies with fixed or heavily managed exchange rates, but may also amplify currency runs when pressure on the domestic currency becomes severe, according to a new paper published by the International Monetary Fund (IMF). 

The findings come from a working paper by economist Brandon Joel Tan who modeled how stablecoins affect parallel foreign-exchange (FX) markets when official dollar access is rationed. 

The paper, “Stablecoins and Fragility in Fixed Exchange Rate Regimes,” suggests that stablecoins can help people get access to dollars when banks or official exchange channels cannot meet demand. However, during a currency crisis, the same widely watched stablecoin price could prompt many people to abandon the local currency, suggesting that regulators may need temporary limits on unusually large or panic-driven transactions. 

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