IMF Warns Tether Stablecoins Can Lift Currency-Crisis Risk to 12.9%

Crypto News

The International Monetary Fund has warned that dollar-pegged stablecoins can intensify currency runs in economies that defend an overvalued fixed exchange rate. In a newly published working paper we have reviewed, IMF researcher Brandon Joel Tan describes a state-dependent effect: these tokens raise welfare during calm periods, yet they deepen crisis risk once a peg becomes badly misaligned. The core danger, our reading of the paper shows, is coordination. Fragmented parallel-market prices collapse into a single, constantly updated figure that lets households exit at the same moment. The finding reframes dollar tokens as both a hedging tool and a systemic accelerant for fragile pegs.

The paper details how the mechanism works. When a government holds an official rate far from the market level, foreign currency is rationed and buyers move to parallel markets for dollars. Those markets stay fragmented — street dealers, brokers and banks quote different prices, and no single number captures true scarcity. Dollar-pegged tokens change that. Because a coin such as Tether (USDT) trades against local currency on exchanges with a visible, continuously updating price, it becomes a common reference for the parallel dollar. Better price discovery helps households hedge, but the same public figure can coordinate an exit when everyone reacts to it simultaneously.

Tan frames the trade-off as two-sided. Making beliefs about misalignment more informative improves allocation, which is why welfare gains peak near 1.2% during calm conditions. Yet the same transparency synchronizes behavior. Once the peg crosses a misalignment threshold around 0.59, the welfare effect turns negative and reaches roughly minus 6.3% in the most extreme scenarios. In other words, the feature that lets a saver in a distressed economy read the true price of the dollar is also the feature that can turn a slow drain into a simultaneous stampede. The public signal informs and destabilizes at once.

Bolivia illustrates the shift in real time. The country’s central bank lifted restrictions on virtual-asset transactions in June 2024, and such activity within the financial system then multiplied twelvefold between July 2024 and May 2025. The USDT-to-boliviano rate became the everyday reference for the parallel dollar, and the central bank itself began publishing USDT prices on its website — an unusual step that effectively endorsed the token as a market benchmark. The episode shows how quickly a dollar stablecoin can move from a niche hedging instrument to the dominant public price signal in an economy under exchange-rate stress.

To isolate the effect, Tan simulates three economies. The first is a cash-only market; the second adds a stablecoin that only lowers access costs; the third also sharpens the public price. Average crisis exposure rises from 3.9% in the cash-only economy to 7.4% in the full stablecoin economy, the paper’s model shows. The decisive gap sits between the second and third setups: cheaper access makes exit easier to execute, but the accurate public price makes coordinated exit easier to time. That coordination channel, not access alone, drives most of the added fragility — a distinction with direct policy implications.

The strain intensifies at the extremes. At the most severe misalignment, average crisis exposure climbs from 4.8% in the cash-only case to 12.9% once stablecoins fully permeate the market — more than a doubling of risk. Yet Tan cautions that blanket restrictions may prove counterproductive, because they strip households of a low-cost dollar option precisely when they need protection most. The policy conclusion is calibration rather than prohibition: authorities defending a misaligned peg face a sharper trade-off than headline adoption numbers suggest, and heavy-handed bans could deepen the very distress they aim to contain.

Read together, the paper’s findings land at a tense moment for digital-asset sentiment. COINOTAG’s aggregate market data shows the Crypto Fear & Greed Index at 26 out of 100, firmly in Fear, while Bitcoin dominance sits at 69.6% and total crypto market capitalization stands near $1.86 trillion — a defensive backdrop in which capital is concentrating in the largest assets rather than the broader altcoin complex. Against that, a primary-source academic warning that dollar stablecoins can amplify currency runs adds a macro-stability dimension regulators are unlikely to ignore. For DeFi venues from Aave to Algorand, whose liquidity leans heavily on dollar tokens, the IMF’s coordination thesis is a signal worth watching.