Domestic stablecoins meant to reduce reliance on the dollar could instead push more users toward dollar-pegged tokens, IMF First Deputy Managing Director Dan Katz says. He points to South Africa, where rand-linked tokens have drawn even less interest than dollar-backed ones, and warns the shift could weaken authorities' grip on capital flows.
Domestic-currency stablecoins designed to curb reliance on dollar-backed tokens could instead make it easier for users to shift funds into digital dollars, IMF First Deputy Managing Director Dan Katz said Friday. He said once local and dollar stablecoins operate on the same blockchain infrastructure, users could convert between them through decentralized exchanges, liquidity pools, or peer-to-peer trades.
Currency conversion could bypass banks entirely
In a speech at the University of Cape Town, Katz said the shift could pull foreign-exchange activity away from banks and currency dealers, cutting into the tools authorities use to track and manage capital flows. According to Cointelegraph: "In this way, local-currency stablecoins might even accelerate the adoption of FX stablecoins,"
South Africa illustrates the pattern
In South Africa, dollar-backed stablecoins have found limited uptake while rand-linked tokens have drawn even less interest, Katz said. It remains too early to draw firm conclusions, but many users may prefer dollar tokens for their liquidity, network effects, and acceptance across platforms and borders.
The risk profile shifts by country. Stablecoins could largely displace existing dollar holdings in economies that are already heavily dollarized, while in countries where dollar access is restricted and economic frameworks are weak, they could instead drive up demand for foreign currency. Katz called on regulators to bring onramps, offramps, and onchain exchange points under formal oversight.
Katz has raised the concern before
Katz has raised similar points since taking on the IMF's first deputy managing director role in October 2025. At an Atlantic Council event on June 17, he examined how tokenized assets and cross-border payments are converging in ways traditional financial infrastructure struggles to match.
Panelists at the World Economic Forum in Davos in January 2026 warned that a wider embrace of dollar-backed tokens could weigh on local monetary frameworks and trigger deposit shifts in emerging markets.
Sources: International Monetary Fund (IMF), Crypto Briefing
Trading involves risk.
Risk Disclaimer
