BIS Warns Stablecoins Are Breaking Capital Controls as Dollarization Accelerates
The Bank for International Settlements (BIS) has issued a warning that U.S. dollar-pegged stablecoins are breaking capital controls and accelerating dollarization in emerging economies, presenting challenges that existing regulatory tools cannot address.
In a working paper published in July 2026, BIS economists Boris Hofmann, Aaron Mehrotra, and Jan Paulick compared the rise of stablecoins to traditional ‘deposit dollarization’ – the practice of holding savings in foreign-currency bank accounts. Their research drew on data from over 130 economies (1990-2019) for deposit dollarization and stablecoin flow data from Chainalysis covering 184 countries (2017-2024).
The paper highlights that stablecoin market capitalization has nearly tripled since 2023, driven primarily by Tether’s USDT and Circle’s USDC, which together account for over 80% of total market cap.
The study found that deposit dollarization and stablecoin inflows respond to similar economic pressures: both increase when a country’s exchange rate pass-through into local inflation is strong, and during financial crises. However, a key difference emerged: banking crises are associated with higher stablecoin inflows but not higher deposit dollarization, while sovereign debt crises push up deposit dollarization by 4-6 percentage points over a decade with little effect on stablecoins. The authors noted that this makes sense as stablecoins operate outside the traditional banking system.
The most significant finding for policymakers is that capital controls are effective at reducing bank dollarization by 25-32 percentage points, but show no statistically significant effect on stablecoin inflows. This is attributed to the nature of stablecoins: they circulate on public blockchains and can be held in unhosted wallets, outside the reach of financial supervisors.
Additionally, both forms of dollarization are highly persistent, with persistence coefficients around 0.8. The researchers found limited evidence that stablecoins are simply replacing bank deposits; rather, stablecoin users in emerging markets appear to be different, possibly younger and more tech-focused.
Using an inflation-at-risk model for 91 emerging economies, the BIS team found a non-linear relationship: countries with moderate dollarization face higher inflation risk, while those with extremely high dollarization may import the U.S. dollar’s credibility, experiencing lower inflation risk.
The authors caution that stablecoin adoption may not continue at its current pace, but if growth persists, central banks and finance ministries will need to confront a channel for U.S. dollar exposure that existing capital-flow tools were not designed to handle.