The Financial Stability Board published a report highlighting the risks affecting emerging economies from foreign currency stablecoins. In countries with unstable currencies and rampant inflation, stablecoins provide an option to park funds elsewhere. Some data may illustrate that emerging market crypto users, such as Argentinians, live day to day using their dollar stablecoins.
However, the FSB’s view is at a bigger picture level. In countries that impose capital controls, stablecoins and crypto provide a way to circumvent these.
Stablecoins are predominantly (99.6%) in U.S. dollars. If a sufficient proportion of the population uses stablecoins, this could threaten the country’s monetary sovereignty, although the FSB doesn’t see that happening yet.
A key takeaway from the report is that a stablecoin could become systemically important in an emerging market before the stablecoin is considered a global stablecoin in its home issuance market. That presents a challenge for the emerging market economy.
One way to address it is to create regulations, forcing the registration of stablecoin issuers that are active in the country.
However, some stablecoins also want to be domiciled in emerging markets, which could mean the jurisdiction is encouraged to create permissive regulations. The FSB is concerned about a competitive race to the bottom.
The dominance of stablecoin activity in Argentina
A graph of Bitso crypto exchange activity in Argentina demonstrates the high level interest in stablecoins. Stablecoins entirely dominate the daily volumes as opposed to other cryptocurrencies. It would be easy to assume that Argentinians are not interested in Bitcoin, but that’s not quite true.
Another graph from a separate Bitso report shows a different picture. More than half of client holdings are in Bitcoin with around 26% of assets in stablecoins.
At first we thought there might be a mistake. However, there are several rationales for both these graphs to be accurate. Take the scenario of someone who lives in Argentina. When they receive their wages they convert them to dollar stablecoins. Then whenever they want to spend money, they draw down dollars. That would create a lot of stablecoin activity. The same person could still have their savings in Bitcoin. Hence. the daily transactions could be evidence of everyday spending.
Another scenario is that the Bitcoin holdings are owned by a relatively small proportion of users.
Bitso is also active in Brazil, Colombia and Mexico. Like Argentina, Colombia shows significant stablecoin holdings of 17% compared to Argentina’s 26%. However, the figures for Brazil and Mexico are far smaller at 8% and 5% respectively.
The FSB said its conclusions are preliminary as reliable data is tricky to access. We’d agree. In our upcoming report on bank stablecoins and tokenized deposits, we briefly explored this topic using related but slightly different data. The FSB concluded there was limited use of stablecoins for remittances. That may be true across the board, but our findings suggest there could be more in certain jurisdictions.
