BIS Warns Stablecoins Are Breaking Capital Controls as Dollarization Accelerates

The Bank for International Settlements (BIS) says U.S. dollar-pegged stablecoins are repeating a pattern central banks have watched for decades, and the regulatory tools that used to work no longer apply.

The researchers found that deposit dollarization and stablecoin inflows respond to similar economic pressures. Both rise when a country’s exchange rate passes through strongly into local inflation, and both climb during financial crises.

One difference stood out. Banking crises are linked to higher stablecoin inflows, but not to higher deposit dollarization. Sovereign debt crises show the opposite pattern, pushing up deposit dollarization by 4 to 6 percentage points over a decade, with little effect on stablecoin inflows.

Hofmann, Mehrotra and Paulick wrote that the banking-crisis link makes sense given that stablecoins operate outside the traditional banking system, becoming more attractive when banks are the source of instability.

Gross stablecoin inflows relative to GDP were essentially zero across countries in 2019. By 2021, the median inflow rose to about 1.2% of GDP, with some countries seeing inflows near 7% of GDP. By 2023, the median had eased to roughly 0.9% of GDP.

The paper’s clearest finding for policymakers involves regulation. Countries that require approval for residents to hold foreign-currency bank accounts saw deposit dollarization ratios around 25 to 32 percentage points lower than countries without those rules, based on data from 2000 to 2016.

Stablecoins showed no such response. The researchers found no statistically significant relationship between restrictions on cross-border stablecoin use and the size of stablecoin inflows.

Both forms of dollarization showed high persistence in the data. Once a country’s deposit dollarization ratio rises, it tends to stay elevated even after the inflation or crisis that triggered it has passed. Autoregressive estimates put the persistence coefficient near 0.8 across both advanced and developing economies, a figure that has not changed since 2000.

The researchers also looked for signs that stablecoins are simply replacing bank deposits as a dollar-holding vehicle. They found limited evidence of that kind of substitution, suggesting stablecoin demand in emerging markets is coming from different users, possibly younger and more tech-focused, rather than shifting existing dollar deposits into crypto form.

The authors describe this as highly dollarized economies effectively importing the credibility of the U.S. dollar as an anchor. The paper found limited evidence that dollarization changes how monetary policy shocks pass through to growth, inflation, or exchange rates.

The authors caution that stablecoin adoption may not keep expanding at its recent pace, and that lessons from decades of bank dollarization may not fully apply to a system built to operate outside supervised finance. Still, the paper argues that if stablecoin growth in emerging markets continues, central banks and finance ministries face a channel for U.S. dollar exposure that existing capital-flow tools were not built to manage.