Safeguarding monetary stability in stablecoins era

"As new technologies reshape the financial system, they raise new questions for policymakers. One that is becoming increasingly important is how to respond to the growing trend towards the tokenisation of financial assets."

These were the opening remarks made by Dan Katz, the International Monetary Fund's (IMF) first deputy managing director during a public lecture at the University of Cape Town (UCT) on 7 August. He was a guest of the Faculty of Commerce's School of Economics and Financial Innovation Hub, where he spoke about "Stablecoins: Promise, risks, and policy choices for emerging economies".

The financial assets he discussed ranged from stablecoins and tokenised deposits to many other forms of financial claims, including wholesale central bank reserves, and theoretical forms of money like retail central bank digital currencies. "Of these, stablecoins are the most mature class. Despite their still modest size, they have attracted outsized attention from policymakers. This is because they offer significant potential benefits, particularly by increasing competition in payments and financial services, while also carrying significant potential risks. Critically, in emerging markets, those benefits and risks are often magnified," Katz said.

"In some emerging markets, tokenisation could also help leapfrog market development by reducing reliance on legacy systems and expanding access."

"The market capitalisation of stablecoins nearly tripled between 2021 and 2025 but has remained relatively flat over the last year at around $300 billion. According to some sources, the total stablecoin transaction volume exceeded $30 trillion in 2025, of which $6.1 billion was cross border. However, the bulk of this activity remains within the crypto ecosystem, and much of it is driven by bots and algorithmic arbitrage."

According to Katz, The Bank for International Settlements estimates there were only $390 billion in payment-related stablecoin flows in 2025. This is in the context of a global cross-border payments market that is estimated at around one quadrillion United States dollars annually.

"This does not fully capture the potential of stablecoins. They are part of a broader trend toward tokenisation. Many financial sector institutions are actively experimenting with tokenised deposits, money market funds, and securities, and central banks are exploring tokenising the money they issue."

Policy implications

Katz added: "In some emerging markets, tokenisation could also help leapfrog market development by reducing reliance on legacy systems and expanding access. Increased competition in retail digital payments from stablecoins could bring benefits in areas such as cross-border payments by bringing down the cost of remittances. There is some evidence this is already happening. Forthcoming IMF research shows that the end-user cost of stablecoins can be significantly cheaper than the current average global remittance cost of 6.5%, which is even higher in many corridors linking African countries."

There is also the fact that advances in artificial intelligence (AI) may accelerate the adoption of stablecoins. Stablecoins' programmability and settlement capabilities make them particularly well suited to a world of agentic AI, where agents transact with each other on behalf of users and businesses.

There are other implications, such as macroeconomic questions for emerging markets, dollarisation dynamics, dollarisation in different country dynamics, as well as policy. Katz concluded with five suggestions for harnessing the competitive forces unleashed by stablecoin innovation, while safeguarding monetary and financial stability:

• Strong macro fundamentals are essential: the best defence against unwanted currency substitution is sound macroeconomic policies and frameworks, credible monetary policy, sustainable fiscal positions, strong institutions, and well-functioning domestic payment systems.
• Close data gaps: policy tools depend on data. This is why the IMF, together with international partners under the G20 Data Gaps Initiative, is working to strengthen the measurement of digital assets by developing and disseminating international best practices.
• Revise the policy toolkit to address the trade-offs that stablecoin innovation may pose: comprehensive regulation, supervision, and oversight of crypto-asset activities are needed. That includes exchanges, on- and off-ramp providers, custodians, and payment platforms.
• Tailor policy responses to the specific channels of stablecoin adoption: where stablecoins expand dollar access beyond what existing frameworks allow, the priority should be to bring stablecoins into the regulatory perimeter by extending capital flow management measures controls to on- and off-ramps and on-chain exchange points particularly where local currency and foreign exchange stablecoins coexist on the same infrastructure.
• Strengthen international cooperation: stablecoins operate across jurisdictions, while regulation and supervision remain largely national. Unless there is effective cross-border cooperation, activity will simply migrate to jurisdictions with weaker oversight or into unhosted wallets outside the regulatory perimeter.

Kantz concluded: "It is entirely possible that stablecoins may never become a much larger force in the international financial system. Other financial instruments and institutions may ultimately outcompete them by adopting tokenisation or other technologies. In that sense, stablecoins could become victims of their own success."