Local-currency stablecoins designed to reduce reliance on dollar-pegged digital assets may inadvertently accelerate the adoption of dollar stablecoins, according to Dan Katz, First Deputy Managing Director of the International Monetary Fund (IMF). Speaking at the University of Cape Town in August 2026, Katz explained that shared blockchain infrastructure between local and dollar stablecoins could drive foreign-exchange activity entirely on-chain, making dollar-pegged tokens more accessible in countries where the U.S. currency is scarce or tightly controlled.
The mechanism is straightforward: if both types of stablecoins operate on the same networks, they can be seamlessly exchanged via decentralized exchanges (DEXs), liquidity pools, and peer-to-peer transactions. This bypasses traditional banks and money changers, potentially shifting a portion of currency conversion away from regulated channels. In jurisdictions with limited dollar availability, such ease of access could increase demand for dollar stablecoins, strengthening the dollar’s global footprint through on-chain convertibility.
Katz stressed that regulators must bring stablecoin deposits, withdrawals, and on-chain foreign-exchange routes into the regulatory fold. His remarks come as global policymakers weigh the benefits of financial innovation against risks to monetary sovereignty and financial stability. The IMF deputy’s perspective suggests that efforts to curb dollar dominance via local-currency stablecoins might backfire without careful regulatory design.
The dominance of dollar stablecoins gives them a formidable head start. The IMF notes that close to 99% of stablecoins are denominated in U.S. dollars, while a 2026 Bank for International Settlements (BIS) analysis puts the share at roughly 98%. USDT and USDC already enjoy extensive exchange listings, deep liquidity, and widespread wallet support, making competition difficult for any newcomer. A local stablecoin might function perfectly yet offer users far fewer places to spend, trade, or transfer it.
IMF research further underscores the interconnectedness. A 2026 IMF Working Paper found that a 1% exogenous increase in stablecoin net inflows widened the gap between stablecoin and spot FX prices by around 40 basis points, exerting depreciation pressure on local currencies and raising dollar funding premiums. The BIS study covering over 130 economies revealed that stablecoin activity and conventional dollarization tend to rise under similar conditions—financial stress and exchange-rate pressure—and that foreign-exchange controls have much less influence on stablecoin flows than on traditional foreign-currency deposits. This means demand for tokenized dollars can spill into conventional currency markets, even if the original transaction never touches a traditional bank.
The real-world impact, however, depends heavily on a country’s economic health. Where monetary policy is credible and inflation low, households have little incentive to switch into dollars. In economies already grappling with depreciation, high inflation, or foreign-currency shortages, the technological ease of converting local stablecoins into dollars could amplify existing dollar demand. A local stablecoin might then serve mainly as a stepping stone to dollar tokens, with high usage numbers masking a rapid exodus from the domestic currency.
For governments considering domestic stablecoins, Katz’s analysis implies that success cannot be measured by wallet counts or transaction volume alone. Policymakers must examine liquidity pairing, holding behavior, and where conversions occur—information that is harder to gather when activity shifts outside the traditional regulatory perimeter.
