How Stablecoins and Other Financial Innovations May Reshape the Global Economy

IMF Blog, September 4, 2025

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Canonical URL: How Stablecoins and Other Financial Innovations May Reshape the Global Economy

Author: Gita Bhatt
Date: September 4, 2025
Central theme: Technology, data, and changing societal values are reshaping how people and institutions move money and trade financial assets, who provides liquidity, and where new risks are brewing.
Context: This issue of F&D follows a prior issue on “The Money Revolution” and assembles academics and policymakers to assess developments around stablecoins, crypto, fintechs, big tech, central bank responses, and regulatory challenges.

Description: Stablecoins are a form of digital asset backed by currencies or government bonds.
Adoption and use cases:
- Stablecoin companies have racked up millions of users globally, transacting across borders 24/7 at very low cost.
- Dollar-pegged stablecoins have become a financial lifeline for people in some economies with high inflation.
Potential benefits:
- Faster and cheaper cross-border payments.
Highlighted risks (from Hélène Rey):
- Risk of dollarization (where the dollar is used in parallel with the local currency).
- Capital flows and exchange rate volatility.
- Potential weakening of the banking system.
- Money laundering and other financial crimes.
- Assessment: While it’s hard to forecast how the use of this technology will play out, it’s “likely to create major financial stability risks,” she writes.
Operational fragility (from Yao Zeng):
- “The global financial landscape has changed, yet the rules remain largely unchanged.”
- Lightly regulated nonbanks are providing more liquidity.
- Lenders are increasingly relying on AI and big data to speed loan approvals, reduce collateral requirements, and reach borrowers traditional banks often overlook.
- Key warning: “Stablecoins may function well in good times, but they can falter under stress.”

Public and private roles:
- Both private-sector initiatives and public-sector projects are driving payments innovation.
- Example: India’s Unified Payments Interface interconnects hundreds of banks, platforms, and apps and carries out more than 19 billion transactions a month.
Competition and incumbents:
- New entrants like fintechs and big techs, and products like crypto and stablecoins, are challenging incumbent financial institutions.
- Iñaki Aldasoro, Jon Frost, and Vatsala Shreeti (Bank for International Settlements) conclude that forward-looking public policies must accompany radical innovation to achieve the most impactful breakthroughs.
Policy implication:
- Governments and central banks have sponsored systems responding to consumer demand for fast, efficient payments; similar forward-looking public policy is needed to harness innovation while containing risks.

Early adoption by criminals:
- Criminals were among the earliest adopters of crypto.
Trade-offs:
- Payment systems must balance privacy and speed with the need to stop tax evasion, money laundering, and terrorism financing.
Practical approach:
- Stanford’s Darrell Duffie and coauthors lay out a practical approach to getting ahead of the curve on preventing crime in new payment systems.

Overarching stance:
- Keep an open mind about stablecoins and financial innovation; there is room for improvement in payment systems and financial markets.
Key regulatory objective:
- Balance risks and benefits through clear regulation that protects consumers and investors and limits spillovers.
Imperative for policymakers:
- Achieve a difficult balance between benefits and risks while safeguarding both individual consumers and financial stability.
Nota bene:
- New legislation in the US and other countries may further boost stablecoin growth.

Carl Benedikt Frey (Oxford): Effects of centralization and competition on AI’s productivity potential.
Swati Bhatt (Princeton): Shifting geography of US start-ups; entrepreneurial activity migrating from California to southern states.
Nick Bloom (Stanford), Hites Ahir (IMF), Davide Furceri (IMF): Economic uncertainty—measurement and implications.
Marc-William Palen: Historical perspective on 19th-century free trade faltering.
Profile: Nobel laureate Guido Imbens on causal inference methods.
Café Economics interview: Stefanie Stantcheva (Harvard) on raising taxes without scaring off innovators.

Source: How Stablecoins and Other Financial Innovations May Reshape the Global Economy — Gita Bhatt, September 4, 2025