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BIS says stablecoins may bypass capital controls in emerging markets

BIS research across more than 130 economies found stablecoin inflows showed little response to capital controls, unlike foreign-currency bank deposits.

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The Bank for International Settlements says dollar-pegged stablecoins could weaken capital controls in emerging markets by reducing governments ability to curb stablecoin adoption compared with traditional foreign-currency bank deposits, Cointelegraph reports. BIS researchers found both foreign-currency deposits and dollar-backed stablecoin inflows rise during periods of macroeconomic stress, but stablecoin flows showed little response to capital controls or other FX restrictions.

The study attributes the pattern to stablecoins circulating partly outside the regulatory perimeter, allowing households and businesses in countries with weak currencies or limited access to financial services to shift into dollars outside the banking system.

While BIS said it saw little evidence that deposit dollarization weakens monetary policy transmission, it noted countries with higher foreign-currency deposits faced some greater risk of elevated inflation, and it argued policymakers may need new tools as regulations designed for traditional banking may be less effective in tokenized finance.

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