{ "title": "The Stablecoin Paradox", "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/2025/12/point-of-view-the-stablecoin-paradox-eswar-prasad", "canonical": "https://www.imf.org/en/publications/fandd/issues/2025/12/point-of-view-the-stablecoin-paradox-eswar-prasad", "overlayPath": "/en/publications/fandd/issues/2025/12/point-of-view-the-stablecoin-paradox-eswar-prasad/index.md", "summary": "Stablecoins may concentrate financial power and reinforce the current structure of the international monetary system", "sections": [ { "heading": "Overview", "content": "- Title: The Stablecoin Paradox\n- Author: Eswar S. Prasad\n- Publication: F&D Magazine\n- Date: December 2025\n- Read time indicator: Less than a minute(0 words) Read\n- Author credentials and related book: ESWAR PRASAD is a professor of economics at Cornell University, a senior fellow at the Brookings Institution, and author of The Future of Money. His latest book, The Doom Loop: Why the World Economic Order Is Spiraling into Disorder, will be published in February 2026.\n- Central thesis: Stablecoins may concentrate financial power and reinforce the current structure of the international monetary system." }, { "heading": "Evolution and function of stablecoins", "content": "- Original crypto ambition:\n - Bitcoin and blockchain aimed to cut out intermediaries and democratize finance.\n - Intended to provide broad access to banking and financial services without brick-and-mortar operations.\n- Practical outcome:\n - Decentralized crypto assets like Bitcoin became speculative financial assets due to volatility and limited transaction capacity.\n- Role of stablecoins:\n - Use blockchain technology but maintain a stable value by being backed one-to-one with reserves of central bank currencies or with government bonds.\n - Serve as more reliable mediums of exchange compared with volatile crypto assets.\n- Governance and decentralization:\n - Stablecoins are the antithesis of decentralization: governance is controlled by the issuing firm, not by decentralized public consensus.\n - Issuers validate transactions rather than relying solely on a computer algorithm." }, { "heading": "Benefits and use cases", "content": "- Payments and friction reduction:\n - Lowered costs and removed frictions in payments, particularly cross-border payments.\n - Facilitate remittances for economic migrants and enable importers/exporters to settle transactions instantaneously rather than waiting days.\n- Potential inclusion:\n - Could provide people of all income levels access to digital payments and decentralized finance.\n - Small countries could gain easier access to global finance through integration with lower-friction payment systems.\n- Technological adoption by incumbents:\n - Large commercial banks are adopting tokenization of deposits and blockchain features to make operations more efficient and extend reach." }, { "heading": "Risks, market concentration, and distributional effects", "content": "- Concentration of economic power:\n - US legislation permitting broad corporations to issue stablecoins could let large corporations (examples cited: Amazon and Meta) leverage sizable balance sheets to dominate issuance.\n - Minting stablecoins by big tech would \"ramp up the power of these corporations\" and \"lead to more concentration not more competition.\"\n - Large banks issuing stablecoins could undercut smaller banks (regional and community lenders) and entrench big players.\n- Decentralized finance outcomes:\n - Outside of payments, decentralized finance has spawned complex speculative products and has not meaningfully improved outcomes for indigent households.\n - Retail investors may be hurt by speculative products that obscure risks.\n- Risks to monetary sovereignty and currency substitution:\n - Dollar-backed stablecoins are in greatest demand and could indirectly boost dollar dominance of the global payment system.\n - Example: Circle, issuer of USDC (described as \"the second most popular stablecoin\"), has seen little demand for stablecoins pegged to other currencies such as the euro and the yen.\n - Stablecoins pose an existential threat to currencies of smaller economies, where users may prefer well-known corporate-issued stablecoins over local currencies that experience high inflation or volatile exchange rates.\n- Systemic and illicit activity concerns:\n - Stablecoins could lubricate illicit financial activities, making money laundering and terrorism financing harder to police.\n - They threaten the integrity of payment systems by creating a disparate set of systems managed by private corporations." }, { "heading": "International implications and central bank responses", "content": "- Reinforcement of current international monetary structure:\n - Stablecoins are likely to reinforce existing currency hierarchies, particularly bolstering the dollar's role.\n- Central bank reactions:\n - Concerns about dollar-backed stablecoins for cross-border payments are motivating central banks (example: European Central Bank) to consider issuing digital versions of their currencies (digital euro).\n - Fragmentation in payment systems: euro area payments within its perimeter remain fragmented; cross-border euro payments within the area are not seamless.\n- Policy space and small-economy exclusion:\n - National-level regulation is insufficient because the internet crosses borders; cooperative international regulation is preferable but unlikely given limited international cooperation.\n - Even with coordination, smaller economies with weaker financial systems and limited regulatory capacity may be excluded from rule-setting and subject to rules that pay little attention to their concerns." }, { "heading": "Policy recommendations and regulatory directions", "content": "- Regulatory objectives:\n - Implement effective regulation that tamps down risks, leaves space for financial innovation, and ensures fair competition by curbing excessive concentration of economic power in the hands of a few companies.\n- International approach:\n - Prefer cooperative, cross-border regulatory approaches over purely national regimes, because the internet and stablecoin networks are transnational.\n- Domestic priorities for small countries:\n - Rather than issuing domestic stablecoins, fix inefficiencies in domestic payment systems and work with other countries to remove frictions in international payments." }, { "heading": "Conclusion and trade-offs", "content": "- Positive catalytic role:\n - Stablecoins highlight inefficiencies in existing financial systems and demonstrate how technology can address payment frictions.\n- Negative possibilities:\n - Stablecoins might lead to greater concentration of financial power and a new financial order characterized by more instability rather than the pro-competition, democratizing promise of crypto’s pioneers.\n\nSource: \"The Stablecoin Paradox,\" Eswar S. Prasad, F&D Magazine, December 2025.\n\n---\n\n Content in this bundle\n\n- The Stablecoin Paradox\n - The Stablecoin Paradox (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n - The Stablecoin Paradox (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/fandd/issues/2025/12/point-of-view-the-stablecoin-paradox-eswar-prasad" } ], "bullets": [ "[Markdown version](/en/publications/fandd/issues/2025/12/point-of-view-the-stablecoin-paradox-eswar-prasad/index.md)", "[Structured JSON version](/en/publications/fandd/issues/2025/12/point-of-view-the-stablecoin-paradox-eswar-prasad/index.json)", "[Bundle manifest](/en/publications/fandd/issues/2025/12/point-of-view-the-stablecoin-paradox-eswar-prasad/bundle-manifest.json)", "Authors: Eswar Prasad", "Published: November 18, 2025", "Title: The Stablecoin Paradox", "Author: Eswar S. Prasad", "Publication: F&D Magazine", "Date: December 2025", "Read time indicator: Less than a minute(0 words) Read", "Author credentials and related book: ESWAR PRASAD is a professor of economics at Cornell University, a senior fellow at the Brookings Institution, and author of The Future of Money. His latest book, The Doom Loop: Why the World Economic Order Is Spiraling into Disorder, will be published in February 2026.", "Central thesis: Stablecoins may concentrate financial power and reinforce the current structure of the international monetary system.", "Original crypto ambition:", "Practical outcome:", "Role of stablecoins:", "Governance and decentralization:", "Payments and friction reduction:", "Potential inclusion:", "Technological adoption by incumbents:", "Concentration of economic power:", "Decentralized finance outcomes:", "Risks to monetary sovereignty and currency substitution:", "Systemic and illicit activity concerns:", "Reinforcement of current international monetary structure:", "Central bank reactions:", "Policy space and small-economy exclusion:", "Regulatory objectives:", "International approach:", "Domestic priorities for small countries:", "Positive catalytic role:", "Negative possibilities:", "**The Stablecoin Paradox**" ], "related": [ { "title": "The Stablecoin Paradox", "role": "document", "sourceUrl": "https://www.imf.org/-/media/files/publications/fandd/article/2025/12/prasad.pdf", "summary": { "path": "/-/media/files/publications/fandd/article/2025/12/prasad.pdf.md", "mime": "text/markdown" }, "binary": { "path": "/-/media/files/publications/fandd/article/2025/12/prasad.pdf", "mime": "application/pdf" } } ], "alternates": { "markdown": "/en/publications/fandd/issues/2025/12/point-of-view-the-stablecoin-paradox-eswar-prasad/index.md", "json": "/en/publications/fandd/issues/2025/12/point-of-view-the-stablecoin-paradox-eswar-prasad/index.json", "bundleManifest": "/en/publications/fandd/issues/2025/12/point-of-view-the-stablecoin-paradox-eswar-prasad/bundle-manifest.json" }, "generatedAtUtc": "2026-09-15T20:13:56.505Z" }