Stablecoins and the new face of dollarisation
Stablecoins have grown from a niche crypto instrument into a market worth more than US$300 billion, and almost all of it is denominated in US dollars. These privately issued tokens promise a stable value against a reference asset, most often the dollar, and they execute around the clock on public blockchains. Their numbers have surged over the past two years, and cross-border transaction volumes are now estimated in the hundreds of billions of dollars. For emerging and developing economies (EMDEs), the question is no longer whether stablecoins matter, but how – and for whom.
The most likely point of entry for stablecoins in EMDEs is as a store of value – particularly in economies with high inflation and volatile exchange rates. Households and firms value a dollar claim they can hold on a smartphone, without a foreign currency (FX) bank account. Cross-border stablecoin flows have grown sharply since 2022, and they are strongest precisely in economies where inflation and exchange rate volatility are highest. The economies most exposed, in other words, are those that the literature already describes as financially subordinate – i.e. those that sit lower in the global currency and financial hierarchy, depend more on external dollar funding, and are more vulnerable to capital flow swings that constrain policy autonomy.
This points to a self-reinforcing dynamic and the potential for “stealth dollarisation“. Because over 99% of stablecoins are dollar-pegged, their immediate effect is to reinforce, not challenge, dollar dominance. Indeed, the dollar’s share in stablecoin markets is even higher than in traditional cross-border finance, for example FX markets, international bank claims and global payments via SWIFT (Graph 1). Stablecoins lower the cost of acquiring dollar claims and extend the dollar’s reach into corridors where correspondent banking is slow or expensive. They can also do so outside the purview of public authorities.