In its working paper From Par to Pressure: Liquidity, Redemptions, and Fire Sales with a Systemic Stablecoin, the IMF cautions that these digital assets could transmit stress from a single issuer to sovereign bond and repo markets.
Unlike traditional money market funds, which operate during business hours with liquidity safeguards, stablecoins allow 24/7 global retail access for purchase and redemption, often without formal backstops. This creates vulnerabilities related to liquidity mismatches, redemption pressures, and potential market contagion. The IMF notes that such dynamics could amplify runs, fire sales, and feedback loops between stablecoin issuers and broader financial markets.
The report highlights that stablecoins’ balance sheets are closely connected to banks, money market funds, and sovereign debt through holdings of cash, repos, and government bonds. Changes in market liquidity or the valuation of these assets could trigger widespread disruptions, especially if a stablecoin issuer holds a sizeable footprint in bond markets.
Large-scale adoption of stablecoins could also shorten sovereign debt maturities, heighten rollover and interest rate risks, and create a “sovereign-stablecoin nexus” in major currencies. For economies without dominant stablecoins, digital currency substitution could undermine monetary sovereignty and weaken policy transmission, prompting central banks to consider local stablecoins, central bank digital currencies, or SC-specific capital controls.
To mitigate these risks, the IMF recommends robust capital and cash-reserve requirements, redemption gates, and lower-duration designs for stablecoins. Structural measures to promote competition and interoperability could also safeguard monetary sovereignty. The report draws parallels to investment fund regulation, where liquidity buffers, gates, fees, and swing pricing have successfully moderated systemic risks.
IMF analysts emphasised that stablecoin design choices have critical implications for monetary and financial stability. Ensuring sufficient solvency and liquidity buffers could prevent runs and de-pegging events, while additional mechanisms can mitigate stress once it occurs.
The report calls for ongoing research and regulatory attention to ensure that stablecoins grow in a way that supports financial stability without undermining national monetary policy frameworks.
–IMF/ChannelAfrica–
