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IMF Report Highlights Risks of USDT and USDC in Weak Monetary Systems
The International Monetary Fund (IMF) has raised concerns over the growing use of dollar-denominated stablecoins, warning that they could accelerate currency substitution in countries with weaker monetary frameworks. In its report, “Understanding Stablecoins”, published Thursday, the IMF cautioned that households and businesses might abandon local currencies in favor of stablecoins, particularly in regions with high inflation or low confidence in domestic financial institutions.
“Stablecoins may contribute to currency substitution, increase capital flow volatility, and fragment payment systems unless interoperability is ensured,” the report stated. The IMF emphasized that these risks are especially pronounced in countries with weaker institutions or diminished trust in their monetary frameworks.
Market Growth and Global Trends
The report highlighted the rapid expansion of stablecoin markets. The two largest stablecoins, USDT and USDC, have tripled in size since 2023, reaching a combined market capitalization of $260 billion, while trading volumes surged to $23 trillion in 2024. Asia now leads in total stablecoin activity, though usage relative to GDP is highest in Africa, the Middle East, and Latin America, regions historically prone to currency substitution risks.
Potential Benefits vs. Systemic Hazards
While stablecoins could increase financial access and reduce payment costs—especially in regions where mobile-based digital services already outpace traditional banking—the IMF warned of macro-financial risks. Potential runs on stablecoins, pseudonymous and cross-border usage, and lack of visibility into holders could undermine capital controls, facilitate illicit finance, and complicate economic monitoring.
Regulation and the Path Forward
The IMF stressed that regulation is emerging but remains inconsistent across jurisdictions like Japan, the EU, the U.S., and the UK, creating opportunities for regulatory arbitrage. Coordinated international action is deemed crucial to prevent market fragmentation, volatility, and runaway currency substitution. The U.S. has passed the GENIUS stablecoin law, and federal agencies are moving forward to implement its rules.
The IMF concluded that stablecoins are here to stay, but their long-term impact on the global financial system depends heavily on strong, coordinated oversight.
