Stablecoins' Promise and Peril: Inclusion Gains Clash with Systemic Risks

Moody’s Ratings has issued a stark warning about the growing risks posed by stablecoin adoption in emerging markets, emphasizing the threat to monetary sovereignty and financial stability. The credit rating agency highlighted that the increasing use of dollar-pegged stablecoins is eroding the effectiveness of central bank policies, particularly in regions where crypto adoption is driven by inflationary pressures, remittance needs, and limited banking access. By 2024, global stablecoin ownership had expanded to an estimated 562 million users, a 33% increase from 2023, according to the report^[1]. Moody’s described this trend as “cryptoization,” a phenomenon analogous to unofficial dollarization but with greater opacity and regulatory challenges^[2].

The agency noted that stablecoins, which are digital tokens pegged to fiat currencies like the U.S. dollar, are increasingly being used for pricing and settlement in emerging markets. This shift undermines domestic currency control and weakens the transmission of monetary policy, as transactions bypass traditional banking systems. In markets like Southeast Asia, Africa, and parts of Latin America, stablecoins are often adopted as a hedge against inflation or a tool for cross-border remittances. However, this creates systemic vulnerabilities, including the potential for capital flight through pseudonymous wallets and offshore exchanges, destabilizing exchange rates and exposing economies to sudden outflows^[1].

Moody’s also pointed to the concentration of stablecoin usage in emerging markets, where regulatory frameworks remain fragmented. Fewer than one-third of countries have comprehensive digital asset regulations, leaving economies vulnerable to volatility and systemic shocks. The report warned that insufficient oversight could trigger runs on reserves if stablecoin pegs collapse, forcing costly government interventions^[1]. In contrast, advanced economies like the U.S. and EU have made progress in regulating stablecoins. The EU’s Markets in Crypto-Assets (MiCA) framework, implemented in December 2024, and the U.S. GENIUS Act, which established enforceable standards for stablecoin issuance, are cited as examples of efforts to address these risks^[2]. China, meanwhile, is exploring yuan-backed stablecoins amid its digital yuan initiatives, though its regulatory approach remains cautious^[2].

The agency underscored the dual-edged nature of stablecoin growth. While they offer financial inclusion by providing alternatives to unstable local currencies, their rapid adoption without adequate oversight could destabilize banking systems. In emerging markets, individuals and businesses are shifting savings from traditional bank deposits into crypto wallets, risking deposit erosion for financial institutions. Moody’s emphasized that the lack of global coordination in stablecoin regulation exacerbates these risks, as fragmented frameworks fail to address cross-border challenges^[1].

The report concludes that the divergence in adoption drivers—financial inclusion in emerging markets versus institutional integration in advanced economies—highlights the urgent need for balanced regulatory approaches. Without robust oversight, the agency warned, the systemic risks from stablecoin-driven cryptoization could undermine monetary policy effectiveness and trigger financial instability in vulnerable economies^[1].