IMF warning: Stablecoins threaten the monetary sovereignty of vulnerable nations, regulatory fragmentation becomes a potential risk

The International Monetary Fund ((IMF)) recently released its report “Understanding Stablecoins” ((Understanding Stablecoins)), revealing the massive impact stablecoins are having on the global financial system. This includes accelerating “digital dollarization” in countries with high inflation and weak institutions, and weakening central banks’ control over capital flows, exchange rates, and monetary policy. While stablecoins have the potential to enhance payment efficiency and financial inclusion, risks such as runs, reserve asset sell-offs, and fragmented regulation are creating mounting systemic risks. The IMF urges countries to take swift action in response.

Making the Dollar Great Again? Stablecoins Quietly Erode Global Monetary Sovereignty

The IMF report points out that the cross-border accessibility, low entry barriers, and high liquidity of stablecoins make them an alternative option for many emerging markets facing high inflation, currency instability, and collapsing institutional trust.

Data shows that 97% of stablecoins are denominated in US dollars, accelerating the digitalization of the dollar globally, weakening some countries’ regulatory abilities, and making it more difficult for central banks to track capital flows.

The IMF warns that this trend will not only reduce tax revenues but will directly undermine the transmission mechanism of monetary policy: “If a country’s currency loses its use cases, its sovereignty begins to erode.”

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What Are the Risks of Stablecoins? Runs and Treasury Sell-offs Could Trigger Financial Market Chain Reactions

The IMF notes that despite being called “stable,” stablecoins harbor major risks, particularly in the areas of reserve authenticity, transparency, and financial complexity.

The report shows that USDT and USDC reserves include short-term US Treasuries, repo transactions collateralized by US Treasury bills, and bank deposits, with the first two accounting for over 80%.

The IMF stresses that if market confidence falters, it could lead to:

Large-scale redemptions: Holders scramble to sell or redeem for physical fiat currency

Issuers forced to sell US Treasuries: Causing sharp fluctuations in short-term Treasury yields

Repo market ((repo)) malfunction: Impacting global liquidity and financial institutions’ funding costs

The IMF states bluntly that without strict regulation and risk buffers, stablecoins could become one of the triggers for a systemic financial crisis.

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Advantages Amid Risks: Financial Inclusion and Payment Innovation Driven by Stablecoins

Despite significant risks, the IMF affirms the potential value of stablecoins. According to the report, stablecoins are poised to create major benefits in the following areas:

Reducing cross-border remittance and transaction costs

Improving payment accessibility for the unbanked

Strengthening settlement environments for cross-border e-commerce and freelancers

Becoming a key payment medium for future tokenized assets

In addition, when combined with smart contracts, stablecoins can enable “atomic settlement” ((atomic settlement)), allowing transactions and payments to be completed simultaneously, reducing counterparty risk and increasing efficiency.

However, the IMF points out that these benefits depend on whether a secure, interoperable, and transparent global framework can be established.

Fragmented Regulation: US, EU, Japan, and UK Each Take Their Own Path

On the other hand, the cross-border nature of stablecoins makes regulation a shared global challenge. The IMF, after comparing major jurisdictions, notes:

The IMF emphasizes that this high degree of regional and jurisdictional regulatory fragmentation will allow regulatory arbitrage to persist, enabling risks to flow across borders and weakening overall effectiveness.

IMF Summary: Stablecoin Currency Substitution and Fragmented Regulation Are Potential Risks

At the end of the report, the IMF makes it clear: “Stablecoins will continue to exist, and their impact depends on whether countries can adopt coordinated regulatory actions and ensure the credibility of their own currencies and institutions.”

The IMF’s core policy recommendations for governments include:

Strengthening macroeconomic policy and monetary systems

Maintaining effective capital flow management measures

Establishing clear legal status, reserve standards, and redemption rights

Enhancing anti-money laundering ((AML)) and financial transparency

Building cross-border regulatory coordination frameworks

Promoting CBDCs or tokenized deposits to provide safe alternatives

In summary, stablecoins are not monsters threatening everything; rather, weak institutions and lack of cooperation are the real sources of risk.

This article, “IMF Warning: Stablecoins Threaten Monetary Sovereignty of Vulnerable Countries, Regulatory Fragmentation Becomes Potential Risk,” first appeared on Chain News ABMedia.