## STABLECOINS, TOKENS, AND GLOBAL DOMINANCE

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**Canonical URL:** [STABLECOINS, TOKENS, AND GLOBAL DOMINANCE](https://www.imf.org/-/media/files/publications/fandd/article/2025/09/rey.pdf)

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### Technology reshaping the international monetary and financial system
- Technology will "shake up the international monetary and financial system" depending on whether standards are set first by the public sector or the private sector, and on regulations, international cooperation, and resilience to cyber risk.
- Potential large impacts on fiscal accounts, geoeconomic fragmentation, exchange rate volatility, and the internationalization of major currencies.
- New functionalities such as programmability could enlarge feasible policy tools and unify capital flows across borders and asset classes if many private and official actors use the same platform.

### Implications of stablecoins
- Stablecoins bridge the conventional financial system and the crypto ecosystem, promising stable value relative to fiat currencies by holding liquid assets such as US Treasuries and operating on blockchains.
- Features and uses:
  - Share features with money market funds and with "narrow banking" (100 percent reserve banking), though typically do not offer interest payments.
  - Almost all stablecoins are pegged to the US dollar; most transactions occur outside the United States.
  - Used as on- and off-ramps to crypto assets (often vehicles for speculative investments) and increasingly as cross-border payment instruments.
  - Useful where domestic financial systems are weak or costly, or when international financial transactions are regulated (capital controls or sanctions).
- Potential negative consequences if dollar-pegged stablecoins become important global payment tools:
  - Dollarization and associated side effects.
  - Financial stability risks and potential hollowing out of the banking system.
  - Currency competition and instability.
  - Money laundering and erosion of tax bases.
  - Fiscal base erosion and privatization of seigniorage.
  - Intense lobbying for deregulation and opacity.
- Potential positive consequences:
  - Quicker and cheaper cross-border payments, benefiting remittances.
  - Citizens in poorly governed countries gaining access to more stable means of payment and stores of value.
  - Shifts in who controls payment data and enforcement of sanctions.

### Capital flows and intermediation
- US dollar stablecoins inherit characteristics of the dollar: network externalities and credibility, enabling them to be an important medium of exchange worldwide.
- They can supersede correspondent banking and messaging systems (e.g., SWIFT), potentially speeding up and lowering costs of cross-border transactions.
- Cost reductions may partly reflect weaker know-your-customer and anti–money laundering compliance if regulators do not catch up.
- Stablecoins can be used to evade sanctions and facilitate illicit transactions, with unbacked crypto assets and stablecoins channeling money linked to illicit or sanctioned activities and eroding tax bases.
- If US dollar stablecoin use increases massively worldwide:
  - Potential hollowing out of banking sectors due to deposit competition.
  - If banks issue stablecoins, lending could be curtailed and US Treasury holdings could increase on banks' balance sheets—akin to narrow banking.
  - Effects on systemic risk and run risks (given questionable backing by some actors) require close scrutiny.
  - Classic costs of dollarization: altered transmission channels of monetary policy and hindered macroeconomic stabilization.

### Privatization of seigniorage and effects on asset demand
- Wide adoption of US dollar stablecoins for payments would be equivalent to privatization of seigniorage by global actors, with implications for fiscal accounts and tax evasion.
- On the asset side, backing of stablecoins implies:
  - Increased international adoption of dollar-pegged stablecoins could lower demand for non–US government bonds and raise demand for US Treasuries.
  - The magnitude of this effect depends on substitution patterns between dollar-backed crypto assets and money market funds and deposits in local currencies and dollars.
- Empirical note: "USDC already hold collectively more US Treasuries than Saudi Arabia," as shown in Chapter 2 of the IMF’s July 2025 External Sector Report.
- Political economy implications:
  - Significant wealth accumulation for a few companies and individuals due to network externalities.
  - Increased lobbying for deregulation and opacity of international capital flows.
  - A public-good dimension of the international monetary system could be undermined.
- Data and measurement:
  - Data collection efforts on crypto capital flows by international organizations and country authorities are nascent.
  - Recent IMF research highlights measurement challenges (Reuter 2025; Cardozo and others 2024).
  - Policy priority: measuring flows, use, and global regulation of cryptocurrencies and stablecoins because they may threaten macroeconomic policies and public goods financing.

### Tokenization and integration
- Tokenization records claims on traditional ledger assets—or native digital assets—on programmable platforms where they can be transferred.
- Tokenization could integrate messaging, reconciliation, and asset transfer on a unified ledger where central bank digital currencies (CBDCs) also play a major role.
- BIS view: different countries’ CBDCs could be linked for efficient cross-border transactions.
- Effects:
  - Interoperability and new trading platforms for global assets (stocks, bonds, commodities) could open access for individual investors everywhere.
  - Decentralized finance (DeFi) platforms could amplify peer-to-peer transactions, cutting out intermediaries and expanding financial integration.
  - Tokenization may thus expand financial integration while bringing known challenges (instability, runs when private monies lack sovereign backing).

### Currencies, fragmentation, and financial stability
- Greater substitutability across currencies could raise competition and produce large portfolio shifts across currency networks.
- Increasing returns to scale and forces pushing toward a single unit of account favor the incumbent dollar, which has a head start.
- Strategic value of payment data and desire for sovereignty could fuel fragmentation and restrictions on some currencies.
- Programmable capital controls and granular wallet restrictions are possible, potentially leading to a more multipolar international monetary system.
- Proliferation of private issuers and tokenization platforms could fracture the monetary and financial system; such a world is "inherently fragile."
- Historical lesson: private monies are unstable absent sovereign credibility; sovereign currencies may also be unstable if fiscal institutions lose credibility.
- International policy cooperation and regulation are essential to prevent excessive fragmentation and financial fragility.

### Integrity privilege and cyber risk
- Loss of data integrity (for example via quantum-computing attacks on public-key cryptography) could trigger massive confidence crises and capital outflows for currency networks exposed to hacking.
- Development of post-quantum cryptography is progressing but outcomes are uncertain given the race for computing power.
- The currency network with the smallest attack surface for hackers would gain a premium and reduce financing costs—termed an "integrity privilege."

### Conclusions and policy implications
- The impact of technology on the international monetary and financial system will be profound but hard to forecast; it will be shaped by unpredictable innovations, regulatory policies, and lobbying groups.
- Major financial stability risks are likely, including:
  - Increased volatility in exchange rates.
  - Threats to public finances in many economies.
  - Competition across currency networks and large wealth transfers altering the political economy of regulation.
- Policy priorities:
  - Strengthen international policy cooperation and regulation to prevent fragmentation and fragility.
  - Prioritize measurement and data collection on crypto capital flows, stablecoin use, and tokenization.
  - Address cyber risk and support development and adoption of post-quantum cryptography to preserve data integrity and the "integrity privilege" of secure currency networks.

*Source: Hélène Rey, "Stablecoins, Tokens, and Global Dominance," F&D, SEPTEMBER 2025.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/09/rey.pdf_