The impact of stablecoins on the international monetary and financial system

Widespread use of stablecoins could have an important impact on the international monetary and financial system, particularly for emerging market and developing economies (EMDEs). Using the framework of international currency functions to analyse their effect, we argue that stablecoins are most likely to affect private sector store of value and medium of exchange roles, particularly in economies facing macroeconomic instability. Given that approximately 98% of stablecoins' value is dollar-denominated, they are likely to initially reinforce existing currency hierarchies. We develop three scenarios to explore the range of potential outcomes. In niche adoption, impacts remain contained within crypto ecosystems. Digital dollarisation poses acute risks to monetary sovereignty in EMDEs through rapid currency substitution. Domestic stablecoin integration could harness efficiency gains while preserving policy autonomy, but it requires significant regulatory capacity. The ultimate trajectory will depend on adoption patterns, regulatory responses and the interplay with other forms of digital money.