A working paper published by the International Monetary Fund has delivered one of the most technically rigorous warnings to date about the systemic risks posed by dollar-denominated stablecoins — not in the open, liquid markets of advanced economies, but in the fragile monetary architecture of countries defending overvalued fixed exchange rates. The paper's central finding is stark: stablecoins, under the right conditions of economic stress, can function as a precision accelerant for currency crises, transforming what might have been a slow, manageable capital drain into a coordinated and catastrophic run.
The research was authored by Brandon Joel Tan, an economist at the IMF, and its analytical framework centers on what he characterizes as a "state-dependent effect." This concept is critical to understanding why the paper's conclusions are neither a blanket condemnation of stablecoins nor a naive endorsement. Tan's model shows that dollar stablecoins can genuinely raise household welfare in periods of monetary calm — providing access to a more stable store of value, reducing transaction costs, and offering financial inclusion to populations historically underserved by formal banking systems. The problem emerges when the economic environment shifts and a currency peg comes under stress.
In those moments, the same properties that make stablecoins beneficial during stability become dangerous accelerants. In economies where parallel currency markets exist — informal exchange windows that reflect the true market price of a local currency rather than the official, defended rate — price signals are typically fragmented across geography, intermediaries, and information asymmetries. Different households, different regions, and different market participants may hold varying beliefs about how severe a currency's overvaluation truly is. This fragmentation, paradoxically, acts as a buffer. It slows the collective realization that a peg is unsustainable and delays mass exit behavior.
Dollar stablecoins eliminate that buffer. Because they are priced transparently, traded on accessible digital platforms, and available to any household with a smartphone, they effectively aggregate those scattered parallel-market price signals into one clear, universally legible number. When that number diverges sharply from the official peg, it does not merely inform — it coordinates. Households that previously lacked the information infrastructure or the financial access to exit a weakening currency simultaneously can, through stablecoin markets, do exactly that. The result, as Tan's paper describes, is a currency run of a speed and scale that traditional capital controls and central bank interventions are poorly equipped to manage.
The implications for emerging-market and developing economies are particularly acute. Dozens of countries currently operate fixed or heavily managed exchange rate regimes, and many of those pegs are maintained at rates that independent economists and market participants regard as overvalued. Historically, the vulnerability of such arrangements depended significantly on information friction — the time it took for enough citizens and investors to collectively reach the conclusion that devaluation was inevitable. That friction provided governments and central banks with a window to adjust policy, seek external financing, or negotiate orderly transitions. Stablecoin adoption, even at relatively modest levels of household penetration, could dramatically compress that window.
What makes the IMF paper particularly significant is its institutional origin. The Fund has long been the primary architect of exchange rate policy advice for developing nations, and its research outputs carry direct influence over the conditionality attached to its lending programs. A working paper of this nature signals that stablecoin risk is no longer treated within the institution as a peripheral concern of the cryptocurrency industry — it is now being modeled as a macroprudential variable with first-order consequences for sovereign monetary stability. Regulators in vulnerable economies, as well as their multilateral partners, will find it increasingly difficult to treat stablecoin adoption as a matter of consumer finance rather than systemic monetary policy.
The paper also raises a deeper question about the architecture of global stablecoin regulation. Current frameworks — whether the European Union's Markets in Crypto-Assets regulation, proposed United States legislation, or emerging-market central bank guidelines — are largely designed around consumer protection, reserve adequacy, and anti-money-laundering compliance. Tan's analysis suggests a missing dimension: the macroeconomic externalities that stablecoin adoption can impose on third-country monetary systems. A stablecoin issued and regulated in Washington or Brussels may be perfectly compliant under its home jurisdiction's rules while simultaneously serving as a destabilizing instrument in Nairobi, Caracas, or Lagos.
What This Means for Policy and Markets
The IMF's state-dependent framing offers a nuanced but ultimately sobering conclusion for policymakers in fixed-exchange-rate economies. Stablecoins are not inherently destructive instruments, and restricting them categorically during periods of stability would sacrifice real welfare gains. But allowing unmanaged adoption without accounting for the coordination risk they introduce during stress periods is equally untenable. The paper effectively calls for a new class of macroprudential tools — circuit breakers, adoption thresholds, or capital-flow measures triggered specifically by currency stress indicators — that go well beyond existing stablecoin regulatory thinking. For the broader financial community, Tan's work is a reminder that the most consequential risks in digital finance rarely emerge in the markets that regulators are watching most closely.
Written by the editorial team — independent journalism powered by Codego Press.