Summary
A new IMF working paper by economist Brandon Joel Tan, titled "Stablecoins and Fragility in Fixed Exchange Rate Regimes" (published July 10, 2026), models how dollar stablecoins improve foreign currency access in fixed exchange rate regimes but can amplify currency runs during crises. The paper provides the first formal framework for understanding when stablecoins help versus when they hurt in emerging markets.
Key Findings
The Dual Effect
Stablecoins generate a state-dependent welfare effect:
- During calm periods: Stablecoins raise welfare by expanding access to foreign currency and improving allocation through better price discovery
- During crises: The same public price can coordinate runs by making beliefs and actions more synchronized
The Mechanism
When a government holds an official rate away from the market level, foreign currency gets rationed. Buyers turn to parallel markets for dollars. Those markets stay fragmented — street dealers, brokers, and banks quote different prices. Stablecoins change this by creating a single, visible, high-frequency price for dollar demand that everyone can see simultaneously.
Simulated Results
Tan simulates three economies to isolate the effect:
- Cash-only market: Baseline
- Stablecoin market that only cuts access costs: Intermediate
- Full stablecoin economy (access + public price): Most exposed
Key metrics:
- Average crisis exposure: 3.9% (cash-only) → 7.4% (full stablecoin economy)
- At most severe misalignment: 4.8% → 12.9%
- Welfare gain peaks at +1.2% during calm conditions
- Welfare turns negative past misalignment threshold of ~0.59
- Welfare reaches -6.3% at extreme misalignment
The coordination effect (public price) drives most of the added risk, not the cheaper access.
Case Studies
Bolivia (June 2025)
- Airport retailers were observed pricing goods using USDT as a reference
- Still accepted US dollars or bolivianos, but prices were quoted in USDT
- Central bank lifted restrictions on virtual-asset transactions in June 2024
- Such transactions multiplied twelvefold from July 2024 to May 2025
- The USDT-to-boliviano rate became the everyday reference for the parallel dollar
- The central bank even began publishing USDT prices on its website
Argentina (2024-2025)
- Underground "crypto caves" exchanged pesos for dollar stablecoins at rates closer to the unofficial market
- Gave residents a way to preserve savings as the peso lost value
- Currency controls restricted access to the dollar through official channels
- Practice highlighted stablecoins as a lifeline during inflation crises
Additional Context
- A separate March 2026 IMF working paper ("Stablecoin Inflows and Spillovers to FX Markets" by Aldasoro, Beltran, Grinberg) examined 27 fiat currencies and found stablecoin flows are measurable, show up in FX market data, and correlate with stress episodes
- That paper found a 1% exogenous increase in net stablecoin inflows raises parity deviations by 40 basis points and depreciates the local currency
Regulatory Recommendations
Tan recommends a state-contingent approach:
- Preserve low-cost access in normal states
- Use temporary, targeted frictions on large or run-like flows when misalignment is high
- Broad restrictions can be regressive (remove low-cost dollar option from unbanked households)
- Stablecoin rules cannot replace macroeconomic adjustment
FSB Warning (March 24, 2026)
The Financial Stability Board separately warned that dollar stablecoins could expose emerging economies to:
- Currency substitution
- Weaker monetary policy transmission
- Circumvention of capital-flow measures
Why It Matters for the July 11 Digest
As stablecoin adoption grows in emerging markets (Nigeria, Argentina, Bolivia, Lebanon), regulators face a tension between financial inclusion benefits and systemic stability risks. The IMF's analysis provides the first formal framework for understanding this trade-off. The paper arrives as the GENIUS Act framework takes shape in the US and MiCA enforcement begins in the EU, both of which will influence how emerging markets approach stablecoin regulation.