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Dan Katz has a warning. The First Deputy Managing Director of the International Monetary Fund thinks countries building their own stablecoins might be doing the dollar a favor — not themselves.
Speaking at the University of Cape Town, Katz laid out a scenario that probably keeps a few central bankers up at night. When domestic stablecoins and dollar-backed tokens run on the same blockchain infrastructure, users can move between them fast — through decentralized exchanges, liquidity pools, or basic peer-to-peer swaps. And when that conversion is seamless, the question becomes: why hold the local token at all? Dollar stablecoins are more liquid. They’re accepted in more places. They’ve got stronger network effects built up over years of cross-border use. For everyday users who need to send money internationally or just want a stable store of value, the math isn’t hard.
Not a theoretical risk.
South Africa Shows the Pattern
Katz pointed to South Africa as a live example. Dollar-backed stablecoins there have seen limited uptake — but rand-linked tokens are doing even worse. That gap matters. It suggests users aren’t just indifferent to local-currency stablecoins; they’re actively less interested in them than in the foreign alternative. And if that preference holds in South Africa, a relatively developed emerging market with a functioning currency and deep financial infrastructure, the dynamic in weaker economies could be far more pronounced.
The concern Katz raised isn’t just about user preference, though. It’s about what happens to the plumbing of foreign exchange markets when stablecoin swaps start replacing traditional currency dealers and bank-intermediated FX transactions. Capital flows that once moved through regulated, visible channels could shift onto decentralized platforms where oversight is harder and intervention is basically impossible in real time. For regulators trying to manage exchange rate stability or enforce capital controls, that’s a serious headache.
The IMF’s position here is pretty clear: the infrastructure itself is the risk. It’s not enough to regulate whether a stablecoin can be issued. You have to regulate the onramps, the offramps, and the onchain exchange points where conversions actually happen.
Dollarized Economies Face Different Stakes
Katz was careful to say the impact varies by country. That nuance matters a lot.
In economies that are already heavily dollarized — where businesses price in dollars, households save in dollars, and the local currency is kind of a secondary consideration — a shift toward dollar stablecoins might not dramatically change the underlying financial reality. The dollar is already dominant. Stablecoins might just be a new wrapper for existing behavior. Disruptive? Maybe at the margins. Economy-destabilizing? Probably not.
But in countries with restricted dollar access and weak economic frameworks, the story is different. There, local-currency stablecoins that make dollar conversion easy could actively accelerate demand for foreign currency. People who couldn’t easily get dollar exposure before now can — with a few taps on a phone. That’s a real pressure on local monetary systems, and it’s the kind of pressure that can compound fast if it’s not anticipated.
And that’s the core of what Katz was getting at. Local-currency stablecoins, built with good intentions to support domestic financial inclusion or reduce reliance on foreign currency, could end up doing the opposite. The shared infrastructure that makes them interoperable with dollar tokens is also the infrastructure that makes it trivially easy to leave them behind.
What Regulators Need to Do
Katz didn’t just flag the problem. He pushed for a specific regulatory response: authorities need to bring stablecoin infrastructure — not just the tokens themselves, but the exchange mechanisms around them — inside existing regulatory frameworks. Onramps, offramps, onchain swap points. All of it.
The logic is straightforward. If capital can flow freely between a rand stablecoin and a dollar stablecoin on a decentralized exchange with no regulatory visibility, then any rules applied only to the rand stablecoin’s issuance are basically incomplete. You’ve regulated the front door and left the windows open.
It’s worth stepping back for a second. The broader context here is that stablecoin adoption across emerging markets has grown sharply, and the regulatory frameworks in most countries haven’t kept pace. The IMF has been increasingly vocal about the risks digital currencies pose to monetary sovereignty, particularly in economies where central bank credibility is already fragile. Katz’s remarks fit into that pattern — but the specific mechanism he’s pointing to, the ease of conversion on shared blockchain platforms, is a more precise and operational concern than the general warnings the fund has issued before.
He also raised the issue of network effects explicitly. Dollar stablecoins have them. Local-currency alternatives don’t, at least not yet. Users who need cross-border functionality will gravitate toward the option that works everywhere, and that’s not the rand token or the peso token. Building a domestic stablecoin without accounting for that competitive reality is, per Katz, a mistake countries can’t afford.
The IMF isn’t calling for a ban on stablecoins or on shared blockchain infrastructure. The call is for regulatory frameworks sophisticated enough to match the actual architecture of how these things work — not just what gets issued, but how it moves, where it converts, and who can see it when it does.
South Africa’s rand-linked token adoption numbers are still low.
Frequently Asked Questions
Who is Dan Katz and what did he say about stablecoins?
Dan Katz is the First Deputy Managing Director of the IMF. Speaking at the University of Cape Town, he warned that domestic stablecoins operating on the same blockchain infrastructure as dollar-backed tokens could inadvertently boost demand for digital dollars rather than reduce reliance on them.
Why does shared blockchain infrastructure matter for stablecoin regulation?
Per Katz, when domestic and dollar stablecoins share the same blockchain, users can convert between them easily via decentralized exchanges, liquidity pools, or peer-to-peer swaps — making it harder for regulators to monitor capital flows and potentially accelerating a shift toward dollar-backed tokens.
