Why it matters
Currency substitution is among the oldest phenomena in monetary economics and the least reversible. Once households and firms have learned to price, save and settle in a foreign unit, switching costs run in the wrong direction: returning to the domestic currency requires a sustained period of credible policy, while abandoning it requires only a few months of high inflation and an alternative within reach.
Stablecoins change the accessibility term. Holding foreign currency used to require a bank relationship, a physical cash market or a trip to an informal dealer; a dollar-referenced token requires a phone. The question is not whether people in high-inflation economies want dollars, which they always have, but whether lowering the cost of obtaining them by an order of magnitude changes the equilibrium share of the economy that is dollarised.
How it works
Substitution proceeds in a characteristic sequence. Store of value comes first, because it responds to expected inflation and requires no network of counterparties. Unit of account follows, as high-value items (rent, vehicles, imported goods) are quoted in the foreign unit even when payment is made in local currency. Payment substitution comes last, because it requires both sides to accept the foreign unit.
The BIS Annual Economic Report 2026 describes this progression as the risk it terms stablecoin dollarisation, warning that foreign stablecoin use could move from limited store-of-value holdings to sizeable transaction settlement, reshaping capital flows, affecting exchange rate dynamics and challenging monetary sovereignty.
Stablecoins accelerate the sequence in a way cash dollarisation does not, because a token has a continuously observable price against the local currency on public venues, which makes the parallel exchange rate visible to everyone at once.
Economic mechanism
The most rigorous treatment of that visibility effect is IMF Working Paper WP/26/144, published in July 2026 by Brandon Joel Tan, which models dollar stablecoins in economies with fixed or heavily managed exchange rates. It separates two channels. An access channel raises welfare by lowering transaction costs. An information channel runs the other way: a liquid stablecoin market produces a high-frequency public price that aggregates dispersed information about exchange-rate misalignment, and that signal can synchronise beliefs and coordinate a run.
The results are state-dependent rather than uniformly good or bad. At low misalignment, stablecoins raise welfare by approximately 1.2% in consumption-equivalent terms. Welfare turns negative at a misalignment threshold of about 0.59, and at maximum misalignment stablecoins reduce welfare by 6.3%. Average crisis exposure rises from 3.9% in a cash-only baseline to 7.4% in a full stablecoin economy, reaching 12.9% at maximum misalignment. Benefits are larger for unbanked households, but the information externality falls on all users.
The paper's Bolivia illustration makes the mechanism concrete. Before virtual-asset regulation in June 2024, parallel dollar prices were dispersed across dealers, quoted between Bs 10 and Bs 15. As stablecoin use expanded, the USDT/BOB price became a unified reference point, and transactions multiplied twelvefold between July 2024 and May 2025. The policy implication is state-contingent: preserve access in normal periods, and apply targeted measures to large flows when misalignment is high.
Participants
Households and small firms are the primary adopters, and their motive is balance-sheet protection rather than speculation. Exchanges, peer-to-peer venues and payment firms provide the on- and off-ramps and, in doing so, publish the parallel rate. Issuers supply the instrument without necessarily targeting the jurisdiction. Central banks respond with foreign exchange rules, licensing and capital flow management measures.
Examples
Measured adoption is concentrated in economies with high inflation, capital controls or both. Chainalysis's 2025 Global Crypto Adoption Index, published on 2 September 2025, ranked India first, followed by the United States, Pakistan, Vietnam, Brazil and Nigeria, and reported year-on-year growth of 52% in Sub-Saharan Africa, 63% in Latin America and 69% in Asia-Pacific.
The clearest single indicator of substitution intensity is the size of stablecoin purchases relative to the economy. Chainalysis data reported in 2024 put stablecoin buying in Turkey at 4.3% of GDP over the period from April 2023 to March 2024, the highest measured share globally, against 1.3% in Thailand, 0.5% in the United States and 0.3% in the European Union.
Stock measures are smaller. The IMF reports stablecoin holdings of about 1.5% of total deposits in Africa and the Middle East and 2.7% in Latin America and the Caribbean in 2024, against foreign exchange deposits of roughly 20% and 25%: conventional dollarisation remains an order of magnitude larger.
Risks and limitations
The main empirical limitation is attribution. Balances are held in wallets, not in jurisdictions, and country-level estimates depend on inference from exchange flows and service usage. Gross transaction volumes are inflated by trading, arbitrage and internal transfers, so headline figures overstate real substitution.
The main analytical risk is confusing correlation with causation. High adoption clusters in economies with weak macroeconomic management, and it is hard to separate the instrument's contribution from the conditions that created demand for it. Tan's model is valuable because it identifies a mechanism, the public price signal, through which the instrument could contribute independently.
For policymakers, both directions carry cost. Restricting access removes a welfare gain measured at around 1.2% of consumption in normal states, accruing disproportionately to unbanked households. Permitting unrestricted access raises fragility in exactly the states where the exchange rate regime is under strain.
Key metrics
Track stablecoin purchases as a share of GDP (Turkey, 4.3% for April 2023 to March 2024, per Chainalysis); stablecoin holdings as a share of domestic bank deposits (1.5% in Africa and the Middle East, 2.7% in Latin America and the Caribbean, 2024, per the IMF); the spread between the official and stablecoin-implied exchange rate; and the share of domestic price quotations in a foreign unit.
Related research
IMF Working Paper WP/26/144 (July 2026) is the most direct formal treatment of stablecoins and exchange-rate fragility. Understanding Stablecoins (2025) supplies the comparative deposit-share data, and Chapter III of the BIS Annual Economic Report 2026 the policy framing.