IMF Paper Warns Dollar Stablecoins Can Trigger Currency Crises
IMF Paper Warns Dollar Stablecoins Can Trigger Currency Crises
A recent working paper from the International Monetary Fund (IMF) has raised concerns that dollar stablecoins could amplify currency runs. Specifically, in economies attempting to defend an overvalued fixed exchange rate, stablecoins might consolidate fragmented parallel-market prices into a single, unified signal, potentially enabling households to exit en masse and deepening financial crises. While offering welfare benefits during calm periods, their potential to exacerbate instability during crises is a significant warning.
IMF Paper Highlights Risks of Dollar Stablecoins
A new International Monetary Fund (IMF) working paper finds dollar stablecoins can amplify currency runs in economies defending an overvalued fixed exchange rate. IMF researcher Brandon Joel Tan describes a state-dependent effect, where stablecoins may raise welfare during calm periods but deepen crisis conditions. The study suggests that by consolidating fragmented parallel-market prices into a single signal, stablecoins could enable households to exit at once, exacerbating currency crises.