IMF Warns Stablecoins Could Shake Monetary Stability Without Global Rules

The newly released 2025 departmental paper, Understanding Stablecoins, examines the rapid expansion of the fiat-referenced tokens and highlights the potential implications for global financial stability, monetary sovereignty, and cross-border capital flows.

As analyzed by the IMF, the market value of stablecoins has grown sharply in recent years, driven for the most part by their role as settlement assets within crypto markets. Many remain embedded inside the trading ecosystem, but the Fund notes that real-world payment use cases are becoming steadily more plausible, as technology improves and jurisdictions start to formalize regulatory structures. Stablecoins differ from unbacked crypto assets because they are designed to maintain value with reference to a fiat currency, typically by means of a reserve portfolio composed of liquid financial instruments.

They are usually issued by private firms promising redemption at par value, and their design has led many to promote them as ways of improving payment efficiency, lowering the cost of transactions, and improving financial access in countries with weak traditional banking systems.

The IMF stresses, however, that these advantages in no way reduce the risks. Among the key concerns raised is the potential for value and liquidity failures if the assets backing a stablecoin lose value or cannot be liquidated quickly during market stress. In such a situation, users may rush to redeem their tokens, creating what the report refers to as a “run dynamic” that could force issuers to liquidate reserve assets rapidly. This could amplify volatility in the broader financial system, especially if the reserve portfolios contain large quantities of short-term government or corporate debt. The Fund also warns that large-scale redemptions could impair the functioning of financial markets and trigger fire sales, especially if stablecoins were to grow large enough to become systemically important.

Another related risk highlighted in the paper is that widespread stablecoin adoption may undermine the role of banks. If users move large funds into privately issued stablecoins rather than bank deposits, banks would lose a stable funding source. This form of disintermediation may have long-lasting implications for financial stability and monetary policy efficiency, according to the IMF. It is also likely to lead to currency substitution in countries with high inflation or institutional fragility, where residents would shift away from domestic currencies-a development that could further magnify volatility in capital flows.

These risks are further compounded, the IMF says, by the fragmented regulatory landscape that today governs stablecoin issuers. Major jurisdictions differ widely on who can issue stablecoins, how reserve assets should be held, what custodial safeguards must be in place, and which entities should be considered systemically important. These inconsistencies raise the risk of regulatory arbitrage, where issuers decide to locate their operations in whatever jurisdictions have the weakest oversight. The inherent cross-border nature of stablecoins further complicates regulatory enforcement, particularly when stablecoins are held in self-custodied wallets that provide limited transparency about ownership or flows.

These are the challenges that the IMF tries to address by calling for a combination of strong domestic regulation and deeper international coordination. It calls for the reinforcement of monetary and financial policy frameworks to reduce potential instability and clear legal treatment of stablecoins. The report puts an emphasis on the need for strict rules governing reserve asset custody and segregation and increased collaboration among regulators in regard to risks from cross-border transactions. These recommendations are based on principles previously outlined in joint work by the IMF and FSB, but the new paper expands its focus toward broader macrofinancial implications.

But despite serious warnings, the IMF recognizes that stablecoins also present meaningful opportunities. They have become integral instruments in crypto trading markets, a bridge between volatile assets and traditional currencies. They can also lead to more efficient cross-border payments, notably remittances, and might help further financial inclusion in emerging markets where access to banking is limited. Yet the report stresses that such advantages will come only if stablecoins operate within robust and consistently applied regulatory frameworks; otherwise, the risks could outweigh the gains.

This paper is published at a very timely moment because regulators around the world are accelerating efforts to regulate stablecoins. Much of the global debate has focused on individual tokens or domestic issues, but the contribution of the IMF raises the discussion to a systemic level. By treating stablecoins as possible constituents of the broader financial system, the paper expands knowledge about how digital instruments could affect capital flows, banking structures, and monetary stability. Instead of offering one universal regulatory model, the IMF encourages countries to adopt frameworks that best suit their domestic contexts while being in line with international standards.

The report contends that the next challenge will be to convert these high-level principles into effective regulation. For many emerging markets, strengthening supervisory capacity, building mechanisms for verifying reserve asset transparency, and creating rules governing issuance and redemption will be a key part of that process. Cross-border cooperation will be critical in monitoring flows, sharing data, and preventing arbitrage as stablecoins go global. The more widely they are adopted, the IMF hints, the more it will make sense to treat stablecoins not just as crypto instruments but as intrinsic components of global finance-and to regulate them as such.