Could stablecoins pose challenges to central banks in emerging markets throughout the world? 

Gita Gopinath, the deputy managing director at the International Monetary Fund, says yes, issuing a stark warning in an interview with the Financial Times on Wednesday, where she pointed out that the uncertainty of U.S. President Donald Trump’s volatile tariff policy posed an ever greater trial to central bankers around the world than COVID. 

In making the comparison she said that at the outset of the pandemic, “central banks everywhere were moving in the same direction in the sense of easing monetary policy very quickly, but this time around the shock has differential effects.”

But if reading the Trump tea leaves was not enough of a problem for these economies, Gopinath then pointed out that central bankers around the world, as well as local financial institutions, now have to deal with another challenge that was far less prevalent during COVID: stablecoins. 

“It is at a relatively young stage, but we are seeing some pretty rapid growth of uptake of crypto in some emerging markets,” she said. “The implications for emerging markets, especially when it comes to stablecoins in terms of the risk of disintermediation of their financial institutions, in terms of currency substitution, those risks are rising.” Her implication with these comments is that if citizens are less reliant on local currencies, then the ability of central banks to effectuate monetary policy will be muted.

Stablecoins are certainly on the march around the world, but do they really pose a threat to the cabal of central bankers? The data is not so clear.

Stablecoin Surge

Gopinath’s comments are particularly noteworthy as the stablecoin industry is approaching its breakthrough mainstream moment. Just yesterday, Circle, the company behind the $61.5 billion USD Coin stablecoin, went public on the New York Stock Exchange in a precedent-setting IPO. The total supply of stablecoins is also now just under $250 billion, and stablecoins processed more than $2 trillion in value over the past 30 days, according to data from Artemis. This number has grown by over 44x since June 2020, when the number was $51.8 billion.

Additionally, almost 35 million active addresses, which are used as a proxy for active users, interact with stablecoins.

Plus, the government looks on track to pass its first piece of standalone crypto legislation by the August recess, which would finally put a regulatory umbrella over this entire industry.

Misplaced Worry?

However, a look at the actual usage in these emerging markets might suggest that the deputy director’s concern is more “boy who cried wolf” than one who actually saw the beast. According to data compiled by Artemis, only five emerging market economies are in the top 20 of stablecoin flows by country: India (1.9%), Brazil (1.2%), Thailand (1.0%), the UAE (1.0%), and Indonesia (0.8%). Those countries account for just 5.9% of the total flows.

Additionally, it is not like citizens of these countries have not already looked for ways to derisk themselves from inflationary local currencies. Elizabeth Rossiello, the founder and CEO of AZA Finance, a B2B payments platform focused on Africa, told Unchained in an interview, “Savings in many volatile emerging markets were already held outside of local currencies — whether in physical assets (i.e. gold), or hard currency. Investment in digital currencies is replacing traditional alternatives, but there is no data to show it is growing an overall percentage of capital flight.”

That said, other countries are still reporting expanding usage. Chris Maurice, CEO of the African-focused crypto exchange Yellow Card, points to Nigeria as one such example. “Nigeria is one of the largest markets on Earth for this technology, and it is growing rapidly.” But its usage is limited. “It’ll be a cold day in hell before you walk into a coffee shop in Johannesburg or in Nairobi and you’re paying for your latte in [stablecoins],” he said. 

The IMF did not respond to requests for further information on Deputy Director Gopinath’s comments or the data she was referring to.

A Better Way to Think About Stablecoins?

When asked to specifically respond to Gopinath’s comments, Maurice pointed out that the only entities that should be scared are the incumbent global banks. 

“It sounds like she has a fundamental misunderstanding of what this technology actually does, because largely for the African context, but broadly across the emerging world in places like Iraq, Turkey, and other countries, what I’ve seen is that this technology is in no way disintermediating or threatening local currencies or local banking systems,” he said. 

“In fact, what it’s doing is strengthening local currencies by providing people and businesses with a better way to actually interact with the U.S. dollar. The only people that should feel threatened by this technology in emerging markets are Citibank, JPMorgan, SWIFT, and anybody else in the legacy corresponding banking network.”

He points out that local banks have the most to benefit from embracing digital dollars because it allows them to circumvent a global banking network that was, in his words, never set up for emerging markets.