A new BIS study reveals that dollar-backed stablecoins are less affected by capital controls in emerging markets, potentially undermining monetary sovereignty and financial stability.
The Bank for International Settlements (BIS) has released a report warning that dollar-backed stablecoins could weaken the effectiveness of capital controls in emerging economies. This finding highlights new challenges for policymakers seeking to manage financial flows within their borders.
Researchers at BIS analyzed foreign-currency deposits and stablecoin inflows across over 130 countries, discovering that both tend to increase during economic stress but stablecoins show little response to capital controls or other foreign exchange restrictions. The report suggests this is due to the decentralized nature of stablecoins, which operate outside traditional regulatory frameworks.
The study emphasizes how stablecoins can undermine monetary sovereignty by allowing individuals and businesses in emerging markets with weak currencies or limited access to financial services to shift into dollars through non-bank channels. This could reduce demand for local currencies and divert financial activity away from conventional banking systems.
In Nigeria, the International Monetary Fund (IMF) found that households and small businesses are increasingly using stablecoins for cross-border payments and remittances as a response to inflation, currency depreciation, and limited foreign exchange access. Similarly, in Latin America, Bitso Business reported an 81% year-over-year increase in stablecoin payment volumes.
The implications of this trend include the need for policymakers to develop new tools to manage financial stability amidst growing stablecoin use. Traditional regulations designed for traditional banking may be less effective against tokenized systems, posing challenges for regulatory oversight and enforcement.
Traders should monitor how these findings influence policy responses in emerging markets and potential changes in stablecoin adoption rates as governments seek to maintain control over monetary sovereignty.
Source: Cointelegraph. Summarized and rewritten by the Vexoda Newsroom. This is market news, not financial advice.