Are International Financial Institutions Doing Enough to Prepare for a Stablecoin Tsunami?

Stablecoins, a form of cryptocurrency pegged to and backed by another asset (usually US dollars), are reshaping the global financial landscape. Unlike fiat currency, they can be issued by private companies, and barriers to entry are relatively low. Stablecoins are appealing because they can process cross-border transactions much faster and more cheaply than conventional payments systems such as SWIFT and Western Union and offer a secure store of value. While most stablecoin activity now involves buying and selling other cryptocurrencies, this is starting to change, with increased stablecoin use for remittances and international settlements. The passage of the US GENIUS Act has accelerated their legitimacy and adoption, helping drive stablecoin transaction volumes to trillions of dollars. Yet their proliferation also poses substantial risks, including banking sector instability, regulatory arbitrage, weaker transmission of monetary policy, and the spread of illicit finance, all of which could destabilize the global financial system. In this paper, we explore these trends and discuss what the international financial institutions should be doing to support countries as they navigate the stablecoin phenomenon. We argue that the International Monetary Fund and World Bank should be much more proactive, and we propose a new agenda for action, starting with the adoption of clear criteria for country engagement on stablecoins and strengthened surveillance activities.