Efforts by emerging markets to develop local-currency stablecoins could inadvertently increase demand for U.S. dollar-backed tokens, the International Monetary Fund has warned. Users tend to favor dollar stablecoins because of their deeper liquidity, stronger network effects, and wider acceptance, the institution noted.

The issue is especially relevant in emerging markets, where stablecoins can provide easier access to foreign currency while simultaneously weakening traditional controls over capital flows and accelerating dollarization. The warning comes as stablecoin regulation is accelerating globally, with frameworks such as the European Union's Markets in Crypto-Assets (MiCA) regulation taking effect and multiple jurisdictions drafting national rules — yet most of these regimes address stablecoin issuance and reserves rather than the currency-competition dynamics the IMF highlights.

South Africa offers an early case study of this dynamic. Speaking at the University of Cape Town, IMF First Deputy Managing Director Dan Katz noted that dollar-based stablecoins have so far gained only limited traction in the country, yet Rand-linked stablecoins have attracted even less demand. This divergence suggests that simply creating a Rand stablecoin may not be enough to shift users away from dollar-denominated tokens.

According to a related report on stablecoins and emerging market policy, the core challenge lies in how stablecoins interact once deployed on shared infrastructure. When local- and dollar-denominated stablecoins operate on the same blockchain, users can potentially convert between them directly through decentralized exchanges, liquidity pools, or peer-to-peer markets — reducing reliance on banks and traditional foreign-exchange intermediaries. That capability could effectively turn a local stablecoin into an on-ramp for dollarization rather than a barrier against it.

The development of ZARU, the first institutional-grade Rand stablecoin, which was recently listed on the Luno crypto exchange, illustrates the growing interest in local stablecoin initiatives — even as adoption remains modest compared to dollar alternatives. The pattern mirrors experiences in other emerging markets, where central banks including those in Nigeria, Jamaica, and the Bahamas have launched central bank digital currencies intended in part to offer a state-backed digital alternative to dollar stablecoins, though adoption results have been mixed.

The IMF estimates that nearly 99% of stablecoins are denominated in U.S. dollars. Stablecoin market capitalization has held at approximately $300 billion over the past year, while payment-related stablecoin flows reached an estimated $390 billion in 2025. According to data showing that Africa's largest crypto exchange processed over $20 billion in stablecoins in the last twelve months, the scale of stablecoin activity on the continent is substantial and growing.

For South Africa, the IMF says the experience also underscores a broader regulatory challenge. The South African Reserve Bank has used data from major crypto exchanges to gain insight into the market, finding that household holdings are predominant. However, the exercise also exposed significant gaps outside the regulatory perimeter — a concern echoed by reports that South African crypto exchange Bitcoin volumes declined by 95% in less than five years.

The IMF recommends that policymakers focus less on simply creating domestic stablecoins and more on strengthening macro-economic fundamentals, improving data collection, and bringing exchanges, custodians, and on- and off-ramp providers into the regulatory framework.

The broader implication is that stablecoin competition may increasingly become a competition over currency networks rather than payment technology alone. A local stablecoin with weaker liquidity and fewer use cases could ultimately make the dollar stablecoin next to it easier to access. As a case study on cross-border stablecoin liquidity noted, liquidity is becoming the most valuable asset in this evolving landscape.