Capital controls may be weakened in effectiveness, BIS warns that stablecoins pose a "digital dollarization" risk for emerging markets

Odaily Planet Daily News: Researchers from the Bank for International Settlements (BIS) have found that dollar-pegged stablecoins are creating a new form of "digital dollarization," which is largely insensitive to capital controls in emerging markets, making it more difficult for governments to regulate these assets compared to traditional foreign currency deposits. The researchers analyzed foreign currency deposits and US dollar stablecoin inflows from over 130 economies, finding that both increase during periods of macro stress. However, stablecoin flows show almost no response to capital controls or foreign exchange restrictions, potentially because they "partially operate outside the regulatory perimeter." The BIS pointed out that stablecoins could undermine monetary sovereignty, and policymakers need to employ new tools to address financial stability risks.