IMF working paper examines how dollar stablecoins expand FX market access but create systemic risk through coordinated run dynamics on pegged currencies.
DeFi & Yields ·
An International Monetary Fund working paper examines how dollar stablecoins are reshaping foreign exchange markets by broadening participation in currency trading, while simultaneously introducing vulnerabilities to coordinated withdrawal runs on pegged currencies. The analysis focuses on the mechanics of how stablecoin adoption can amplify instability in fixed-exchange-rate regimes, where sudden mass redemptions could destabilize the peg.
The convergence of cryptocurrency and traditional FX reflects structural inefficiencies in legacy systems: the FX market, which averages roughly $9.6 trillion in daily turnover with the US dollar involved in nearly 90% of trades, remains overwhelmingly over-the-counter with fragmented pricing and slow settlement across multiple intermediaries. Stablecoins and onchain settlement mechanisms compress these frictions by enabling direct peer-to-peer currency conversion on public ledgers, with the total stablecoin market now exceeding $322 billion.
The paper's core concern remains unresolved: how to design regulatory frameworks that harness stablecoins' efficiency gains for financial inclusion and FX access while containing the risk of synchronized runs. It is unclear whether existing safeguards for pegged currencies—traditionally designed for banking systems and capital controls—can scale to address the speed and coordination potential of onchain redemptions.