IMF highlights potential for domestic stablecoins to increase demand for dollar-backed tokens

The International Monetary Fund’s first deputy managing director, Dan Katz, laid out a paradox that should keep central bankers in developing nations up at night. Countries that launch their own domestic stablecoins might inadvertently boost demand for the very dollar-backed tokens they were designed to compete with.

Speaking at the University of Cape Town on August 7, Katz argued that users are gravitating toward dollar-pegged stablecoins because of their superior liquidity, powerful network effects, and seamless cross-border acceptance. The implication is straightforward: even when governments try to build homegrown alternatives, the gravitational pull of the digital dollar may prove too strong to resist.

The digital dollar’s gravitational pull

Katz’s remarks build on a theme he has been developing since taking the first deputy managing director role in October 2025. At an Atlantic Council event on June 17, he explored how asset tokenization and cross-border payments are converging in ways that traditional financial infrastructure struggles to match.

The logic runs something like this. A domestic stablecoin, pegged to a local currency, still needs to interact with global markets. The moment it touches cross-border commerce, traders and consumers discover that dollar-backed tokens settle faster, trade in deeper pools, and are accepted by more counterparties worldwide. So even a well-designed local stablecoin becomes an on-ramp to dollar-denominated assets rather than a substitute for them.

Katz did not frame this as inherently negative. He acknowledged the genuine benefits, noting that dollar-backed tokens offer real utility for remittances, trade settlement, and financial inclusion in regions where local banking infrastructure is unreliable.

Emerging markets feel the squeeze

The IMF’s concerns did not emerge in a vacuum. At the World Economic Forum in Davos in January 2026, panelists warned that the rise of dollar-backed tokens could pressure local monetary frameworks and trigger deposit shifts in emerging markets. When citizens can hold a stable, dollar-pegged asset on their phones, the incentive to keep savings in a depreciating local currency weakens considerably.

The IMF has been increasingly vocal about these dynamics. Stablecoins’ growing influence in emerging markets has prompted internal policy debates about whether the Fund’s existing frameworks, designed for a world of sovereign currencies and correspondent banking, are adequate for an era of programmable money that moves at the speed of the internet.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.