Stablecoins, one of the fastest-growing segments of the digital-asset ecosystem, could pose increasing risks to monetary sovereignty and financial stability unless governments implement robust regulatory frameworks, according to a new International Monetary Fund (IMF) departmental paper published in 2025. The report, Understanding Stablecoins, offers one of the most comprehensive assessments to date of how these assets function and where the greatest vulnerabilities lie.
The IMF notes that stablecoins have doubled in issuance over the past two years, driven largely by their use as trading instruments within the crypto-asset market. Unlike unbacked cryptocurrencies such as Bitcoin, stablecoins aim to maintain a one-to-one parity with fiat currency. Most are backed by short-term dollar-denominated assets such as Treasury bills, which has helped them gain traction as a liquidity tool on global exchanges.
Expanding beyond crypto markets
While today’s use cases remain concentrated in crypto trading, the IMF says stablecoins are increasingly being used for cross-border transfers, including remittances. The paper highlights how their low-cost, rapid settlement features could eventually make them attractive for domestic retail payments as well, depending on how regulatory frameworks evolve.
Yet the currency composition of stablecoins reveals a critical geopolitical implication. The vast majority are denominated in U.S. dollars. Widespread adoption across emerging or smaller economies could accelerate currency substitution, potentially weakening local monetary systems and circumventing capital-flow management rules.
Efficiency comes with financial-stability risks
The authors warn that despite their promise, stablecoins introduce a new set of macrofinancial risks. Because issuers typically hold large volumes of short-term securities, sudden redemptions could trigger fire-sale dynamics and disrupt underlying markets. If confidence in a stablecoin falters, users may rush to exit, causing the token to break its peg.
The paper notes that these risks are more acute in countries with high inflation, weak institutions, or fragile monetary frameworks. In such environments, stablecoins could quickly become a substitute for domestic money, reducing the effectiveness of central bank policy.
Regulation remains fragmented
Although global authorities, including the Financial Stability Board and the IMF itself, have issued high-level recommendations for supervising stablecoins, implementation remains uneven across jurisdictions. The report compares early frameworks in Japan, the EU, the United States and the United Kingdom, finding a patchwork of approaches that may complicate cross-border enforcement.
The IMF calls for clearer legal treatment, stronger prudential requirements, enhanced financial-integrity controls, and closer international coordination. Without these measures, the rapid growth of stablecoins could increase systemic vulnerabilities and undermine global financial stability.
Implications for Europe
For the EU, this analysis strengthens the case for enforcing the Markets in Crypto-Assets (MiCA) regulation and accelerating work on the digital euro. The IMF warns that unless credible public options and regulatory standards are in place, dollar-based stablecoins may continue to dominate European digital payments.
The EU is already positioning itself to prevent such an outcome. As the European Central Bank moves forward with the digital euro legislative process, policymakers are framing the project as a safeguard for monetary autonomy, particularly in light of the rapid rise of privately issued digital money.