Technology is poised to shake up the international monetary and financial system. How that happens depends on whether technologies are shaped by the public sector or the private sector sets standards first. Also at play are regulations, international cooperation, and the resilience of new technologies to cyber risk. The effects on capital flows are hard to assess, but they could have a surprisingly large impact on fiscal accounts, geoeconomic fragmentation, exchange rate volatility, and the internationalization of major currencies.
Stablecoins are one of the most relevant innovations, increasingly embraced amid US introduction of a legal framework designed to boost adoption and solidify the dollar’s role as the main international currency. Tokenization plays a role as well. It is the process of recording claims on assets that exist on a traditional ledger—or native assets (that is, only issued digitally)—on a programmable platform, where they can be transferred (Agur and others 2025).
These new technologies could unleash new functionality, such as programmability, and enlarge the set of feasible policies, as well as deeply unify the way capital flows across borders and asset classes if many private and official actors use the same platform. But they also could threaten government revenues and take us back to a 19th century world of private money issuers competing for seigniorage, which would fragment and destabilize the international financial system.
Implications of stablecoins
Stablecoins issued by the private sector bridge the conventional financial system and the crypto ecosystem. They promise stable value relative to fiat currencies, mainly by holding liquid assets such as US Treasuries, and operate on blockchains. They share some features with money market funds and with “narrow banking”—also known as 100 percent reserve banking—though they typically do not, so far, offer an interest payment. Almost all stablecoins are pegged to the US dollar, but most transactions happen outside the United States. Stablecoins tend to be used as on- and off-ramps to crypto assets, in which case they are probably vehicles for speculative investments. But increasingly, they are also a cross-border payment instrument. They are useful where the domestic financial system is weak or costly to use or when international financial transactions are regulated, either because of capital controls or externally imposed sanctions.
In a world where stablecoins, particularly those pegged to the dollar, become an important global payment tool, we must brace ourselves for substantial consequences. On the negative side are dollarization and its side effects, financial stability risks, potential hollowing out of the banking system, currency competition and instability, money laundering, fiscal base erosion, privatization of seigniorage, and intense lobbying. On the positive side, cross-border payments may be quicker and cheaper, which matters especially for remittances. And citizens of countries with poor governance would have access to more stable and convenient means of payment and store of value than their domestic currency. Who gets payment data and US dominance when it comes to imposing sanctions will be affected as well. Clearly these possibilities warrant more discussion.
Capital flows and intermediation
US dollar stablecoins inherit some characteristics of their parent, the most important international currency. Tied to the dominant unit of account, they can benefit from the dollar ecosystem’s network externalities and from its credibility and hence have the potential to be an important medium of exchange worldwide, facilitating transactions and remittances. By superseding the system of correspondent banking and messaging systems such as SWIFT, they may speed up and lower the costs of cross-border transactions, improving efficiency. But some of this decrease in cost may result from a lack of know-your-customer and anti–money laundering compliance—that is, if regulatory authorities do not catch up. Stablecoins are certainly also an attractive way to get around sanctions and engage in illegal transactions. They are more stable than Bitcoin and Ether, which have been used precisely for those purposes (Graf von Luckner, Reinhart, and Rogoff 2023; Graf von Luckner, Koepke, and Sgherri 2024). Unbacked crypto assets and stablecoins could thus help channel money linked to illicit or sanctioned activities and substantially erode the tax base of many countries. Crypto users are likely to find off-ramps to conventional financial systems in some jurisdictions, offshore or even onshore.
If the use of US dollar stablecoins increases massively worldwide, it could hollow out banking sectors because of competition for deposits. If banks themselves issue stablecoins, it could curb lending and increase US Treasury holdings—assuming these are the main assets backing the stablecoins—on the asset side of the balance sheet, a development akin to narrow banking. The effects on systemic risk, as well as the potential questionability of some actors’ backing of stablecoins and the ensuing run risks, bear a close look. And the classic cost of dollarization around the world should be kept in mind: It can alter the transmission channels of monetary policy and hinder macroeconomic stabilization.
Privatization of seigniorage
For the rest of the world, including Europe, wide adoption of US dollar stablecoins for payment purposes would be equivalent to the privatization of seigniorage by global actors. Along with easier flows linked to tax evasion, fiscal accounts could be affected. On the asset side, the backing of stablecoins means that increased international adoption of those pegged to the dollar could lower demand for non–US government bonds and raise demand for US Treasuries. The magnitude of this effect will depend on substitution patterns between dollar-backed crypto assets and money market funds and deposits in local currencies and dollars. Tether and USDC already hold collectively more US Treasuries than Saudi Arabia, as shown in Chapter 2 of the IMF’s July 2025 External Sector Report. Thus, by increasing the demand for Treasuries and the stock of US external safe liabilities, US dollar stablecoins could reinforce the “world banker” balance sheet of the United States and help stabilize US finances and external deficits. These stablecoins could constitute a digital pillar strengthening the exorbitant privilege of the US dollar.
Another consequence of growing US dollar stablecoin flows, leading to the privatization of global seigniorage, is significant wealth accumulation by what is likely, given the strength of network externalities, to be a few companies and individuals. From a political economy perspective, this will usher in increased lobbying for deregulation and opacity of international capital flows. Such an outcome would defy the public good dimension of the international monetary system. Unfortunately, data collection efforts on crypto capital flows by international organizations and country authorities are still in their infancy. There are two valuable contributions in recent IMF research that describe these challenges (Reuter 2025; Cardozo and others 2024). Since the emergence of cryptocurrencies may threaten core macroeconomic policies and the financing and provision of national and global public goods, measuring their flows, use, and global regulation should be a policy priority.
