Stablecoins Could Reshape Global Payments, IMF Warns

• Stablecoins can cut costs and speed cross-border payments, boosting financial inclusion in underserved regions.

• Currency substitution and market volatility remain major risks, requiring strong international regulatory coordination.

• Collaboration between banks, regulators, and policymakers is crucial to safely harness stablecoins’ global potential.

Stablecoins are gaining influence in global finance, creating both opportunities and risks, the International Monetary Fund (IMF) said. With a market capitalization of about 10 percent of Bitcoin, these digital assets are increasingly linked to mainstream financial markets.

As explained by the IMF, stablecoins can make cross-border payments faster, lower in cost, and more inclusive. But concerns are being raised regarding the impact of growing stablecoins on currency substitution, capital flow volatility, and financial integrity. Experts at the IMF are now calling for regulatory action towards using stablecoins for the benefit of global finance in a safe and sound way.

Apart from minimizing transaction costs, stablecoins can also make cross-border money transfers easier by making correspondent banking chains shorter. This is because current cross-border money transfers involve several banks, different time zones, and large transaction costs.

Remittance transfers, for example, charge up to 20 percent of the amount sent. This problem would be solved with stablecoins, which are collateralized with liquid instruments such as U.S. treasury bonds and are pegged to the U.S. dollar.

Moreover, Asia leads global trading volumes, while Africa, Latin America, and the Middle East show the highest usage relative to GDP. Consequently, stablecoins are positioning themselves as a key tool for financial inclusion and innovation.

Opportunities and Use Cases

Today, most stablecoins facilitate cryptocurrency trading, acting as a bridge to conventional currencies. Additionally, they could foster retail digital payments where banks are less active. By promoting competition with traditional payment providers, stablecoins could lower costs and diversify products.

Many developing countries are already leapfrogging conventional banking, leveraging mobile phones and tokenized digital money. Hence, stablecoins could enhance financial access and encourage innovative services across the globe.

Risks and International Challenges

However, stablecoins carry significant risks. Their value can fluctuate if reserves lose worth or users lose confidence, potentially causing market instability. Currency substitution may reduce a central bank’s ability to manage monetary policy, particularly in emerging economies. Furthermore, pseudonymous transactions make stablecoins attractive for illicit purposes like money laundering.

Despite this, there still seem to be inconsistencies in regulatory frameworks, which create arbitrage opportunities for issuers to set up shops in regions with light oversight. It is on this basis that the IMF has called for international collaboration in this endeavor through the Financial Stability Board and BIS to improve oversight and fill the gaps in data.

Stablecoins have come to stay, but the level of adoption in the future remains in question. Some of the providers could carve out a place for themselves as the global leader, while conventional banks could also look at creating digital currencies. Improvement of the payment infrastructure could be the cheapest option.

As IMF experts conclude, “Turning stablecoins into a force for good in the global financial system will require concerted actions by policymakers.”