IMF Warning: Dollar Stablecoins Could Ease FX Access but Trigger Massive Currency Runs

A new IMF working paper warns that while dollar-pegged stablecoins can improve access to foreign exchange, they also pose a significant risk of amplifying currency runs during periods of economic instability. In economies with fixed or heavily managed exchange rates, these digital assets provide a crucial lifeline when official banking channels fail to meet the demand for USD.

However, the research by economist Brandon Joel Tan highlights a dangerous feedback loop: the real-time visibility of stablecoin prices could trigger simultaneous mass exits from local currencies. This potential for coordinated panic suggests that regulators may need to implement temporary limits on large or panic-driven transactions to prevent total systemic collapse during exchange-rate stress.

An IMF working paper states that dollar stablecoins can improve access to foreign currency but may also help coordinate exits from local currencies during periods of severe exchange-rate stress. The findings, published in the paper “Stablecoins and Fragility in Fixed Exchange Rate Regimes,” model how stablecoins affect parallel foreign-exchange (FX) markets when official dollar access is rationed.

The findings highlight that stablecoins can help people get access to dollars when banks or official exchange channels cannot meet demand. However, during a currency crisis, the same widely watched stablecoin price could prompt many people to abandon the local currency simultaneously, suggesting that regulators may need temporary limits on unusually large or panic-driven transactions to mitigate volatility.