Dollarisation and monetary control: what lessons for the rise of stablecoins?

The emergence of stablecoins has created a new channel to access US dollar liquidity in emerging market and developing economies (EMDEs), similar to the historical role of foreigncurrency deposits, or "deposit dollarisation". This has raised concerns about the possible implications for monetary control in EMDEs. Drawing on data on foreign currency deposits and dollar-pegged stablecoin inflows for more than 130 economies, we compare the dynamics and drivers of "stablecoin dollarisation" with those of conventional deposit dollarisation. We document that historical deposit dollarisation and recent stablecoin flows are both associated with similar macro-financial drivers, including the strength of exchange rate pass-through and sovereign or banking crises. We further document significant persistence in both deposit and stablecoin dollarisation, suggesting that dollarisation is hard to reverse once established. Unlike deposit dollarisation, stablecoin flows seem to be largely unaffected by either broad or specific capital flow restrictions. This likely occurs because stablecoins are partly circulating outside the regulatory perimeter. The historical record also suggests that moderate deposit dollarisation has been associated with somewhat higher inflation risks, although there is little evidence of significant impacts on monetary policy transmission.