The Financial Stability Board (FSB), a global financial watchdog, has issued a stark warning about the potential risks posed by US dollar-denominated stablecoins to the financial stability and macroeconomic health of emerging markets and developing economies.
In its annual report for 2025, the FSB highlighted that the circulation of these stablecoins across multiple jurisdictions could lead to more acute financial stability risks. These risks include currency substitution, reduced use of domestic payment systems, diminished effectiveness of domestic monetary policy, and strains on fiscal resources.
Key Risks and Vulnerabilities
The report underscores several critical vulnerabilities associated with the widespread adoption of dollar stablecoins in emerging economies. One of the primary concerns is currency substitution, where the local currency is gradually replaced by the stablecoin, leading to a loss of monetary control for the central bank. This can exacerbate economic instability and reduce the effectiveness of monetary policy tools.
Another significant risk is the reduced use of domestic payment systems. As more transactions are conducted using stablecoins, the domestic financial infrastructure may become underutilized, potentially weakening the financial sector and increasing reliance on foreign entities.
Regulatory Framework and Monitoring
The FSB emphasized the importance of ongoing assessment and regulation of the stablecoin sector to address these vulnerabilities. The board’s 2023 global regulatory framework for crypto asset activities and global stablecoin arrangements, reviewed in 2025, still shows significant gaps and inconsistencies in implementation. Lawmakers and regulators are urged to remain vigilant and adapt their frameworks to the evolving landscape.
“It remains necessary for lawmakers to assess how the stablecoin sector develops in order to understand and respond to vulnerabilities related to liquidity, operational risk, and interlinkages with the broader financial system,” the report stated.
Benefits and Future Focus
While the FSB acknowledges that stablecoins can offer benefits such as faster and cheaper cross-border payments, the report stresses the need for authorities to continue monitoring the sector. As the linkages between stablecoins and core financial markets and institutions increase, the potential for systemic risks also grows.
The FSB outlined several key areas of focus for 2026, including digital innovation related to crypto assets, monitoring stablecoin vulnerabilities, and addressing issues in private credit, nonbank financial intermediation, cross-border payments, and crisis preparedness. The board also called for stricter oversight against AI vulnerabilities and the implementation of additional regulatory measures.
Conclusion and Forward-Looking Insight
The FSB’s report serves as a critical reminder of the need for a balanced approach to the regulation of stablecoins. While these digital assets offer potential benefits, the risks they pose to emerging markets cannot be overlooked. As the global financial landscape continues to evolve, it is imperative that policymakers and regulators work together to ensure that the benefits of stablecoins are realized while mitigating the potential negative impacts on financial stability and economic sovereignty.
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