IMF Warns Stablecoins Threaten Monetary Sovereignty and Could Reinforce Dollar Dominance

The International Monetary Fund (IMF) has issued a stark warning that the rapid growth of stablecoins could undermine national currency control and policy sovereignty, while potentially reinforcing the dominance of the U.S. dollar in the global financial system. In a report highlighted by Professor Eswar Prasad, the IMF argues that stablecoins, despite facilitating decentralized finance (DeFi), are "the antithesis of decentralization" because they rely on trust in the issuing institutions rather than decentralized trust mediated by computer code.

The report contends that concentrating stablecoin issuance to top private firms contradicts crypto's core goal of democratizing finance. A significant concern is that dollar-backed stablecoins, such as Tether's USDT and Circle's USDC, could strengthen the current international monetary system. These tokens collectively command over $303 billion, or 99.7% of the total stablecoin market supply, according to data from Artemis.

This dominance risks weakening rival currencies like the Euro and the Japanese Yen. The IMF notes that developing countries with highly inflationary currencies may face substantial capital outflows as citizens seek more stable alternatives. Standard Chartered estimates these outflows from emerging markets into stablecoins could reach $1 trillion.

While euro-based stablecoins are growing steadily—currently at $617 million with potential to hit $1 billion by 2026—they remain a fraction of the dollar-dominated market. In response, the Eurozone and China are advancing their own central bank digital currencies (CBDCs) to counter potential dollar hegemony.

The IMF acknowledges stablecoins' utility for faster cross-border payments and financial inclusion but stresses that benefits require strong regulation. It advocates for a "same activity, same risk, same regulation" principle to ensure issuers face oversight comparable to large financial institutions. The fund also calls for enhanced cross-border coordination, as digital asset impacts transcend national borders.

Contrasting views exist within the industry. Noritaka Okabe, CEO of Japan's first regulated yen-based stablecoin issuer JPYC Co., disagrees with the IMF's focus on "issuer control," arguing that users directly manage funds via self-custody wallets without intermediary control.

Market dynamics show the sector's resilience. Following the passage of the U.S. GENIUS Act in July, which provided regulatory clarity, stablecoin supply surpassed $300 billion for the first time. Monthly inflows ranged from $10 billion to $18 billion between July and September. Although November's market downturn flipped inflows negative, positive momentum resumed in December, signaling renewed crypto activity and adoption.