Analysts refute IMF warning about stablecoin risk to emerging market currencies

The IMF released a report warning that stablecoins could pose a big risk to emerging markets and developing economies (EMDEs), potentially undermining local currencies. The December report claimed that stablecoins could facilitate capital outflow and currency substitutions across EMDEs, but experts say the market is too small for a meaningful macroeconomic impact.

However, the IMF emphasizes that these fiat-pegged tokens/coins could be used to avoid CFMs (capital flow management measures), whose implementation relies on recognized financial mediators. Stablecoins could be used to undermine the implementation of CFMs by presenting an avenue for capital flows outside of standard financial rails.  

Additionally, the IMF report claimed that there is evidence indicating that stablecoins are being used as a means of capital flight in EMDEs. On the other hand, these concerns may not be unfounded since fiat-pegged stablecoins facilitate transactions outside common banking channels. 

For perspective, the U.S. dollar-pegged USDT and USDC collectively boast a market capitalization of nearly $264 billion, according to CoinMarketCap’s on-chain data. That amount could be comparable with France’s FX reserves, but it remains larger than that of many other countries, including Thailand, the UK, Israel, and the UAE. That also means that locals from panic-gripped EMs can move capital across borders using stablecoins, weakening the monitoring of capital flows. 

Acheson says stablecoins are too small for a macro impact on EMs

The author of the Crypto is Macro Now newsletter, Noelle Acheson, said that while the IMF’s claim could seem plausible, the stablecoin market is still too small to have this significant impact on the macroeconomics of emerging markets despite their rapid growth over the past few years. She also added that their total market size is tiny compared to FX flows. 

Acheson also noted that stablecoins being legalized by the GENIUS Act will not be relevant until sometime in January 2027, although the law has already been passed. She pointed out that stablecoins may never gain significant relevance in EMs whose traders are required to adhere to local legislation. Authorities in some of these EMs may be entirely against the use of stablecoins.

Coinbase’s head of institutional research, David Duong, also shared the same sentiment, saying that stablecoins are too limited in scale and policies prevent systemic frictions. He noted that while stablecoins can accelerate flight-to-USD in nations where they are already popular, their overall scale is small compared to portfolio flows across borders.

The bulk of NDF (non-deliverable forwards) channels, mutual fund outflows, and bond/equity redemption mechanisms would still dominate macro impacts, according to Duong.

Stablecoins eclipse unbacked crypto assets in cross-border flows

The IMF report revealed that stablecoin cross-border flows already eclipse those of unbacked crypto assets, such as Bitcoin, with the gap widening ever further. It also noted that the Asia-Pacific region leads in absolute stablecoin volumes, followed by North America. However, the economies of Africa, the Middle East, the Caribbean, and Latin America (EMDEs) stand out when scaled to GDP. 

Meanwhile, Acheson noted that the dollar remains too entrenched in the global economy, despite the rapid growth of fiat-backed stablecoins, which have increased from $5 billion in 2020 to roughly $300 billion currently.

She further observed that although the dollar does not have a market cap like crypto or stocks, its global physical cash and reserves exceed $2.5 trillion. Broader measures, such as M2 and international liabilities, also dwarf stablecoins, at $20 trillion and $100 trillion, respectively. 

Besides, around 80% of stablecoins in EMDEs are used for crypto trading and not for managing treasuries, according to Acheson. The IMF report also noted that EMDEs dominate these corridors with 2024 flows reaching approximately $1.5 trillion. However, this represents only a fraction of the quadrillion-dollar global payments market, which is dominated by the USD. 

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