The International Monetary Fund (IMF) has warned that the growing adoption of dollar-backed stablecoins must not weaken fiscal and monetary discipline in countries whose currencies and assets underpin the digital tokens.
IMF Managing Director Kristalina Georgieva issued the warning while speaking at the Jackson Hole Economic Policy Symposium titled “Navigating a financially more fluid world.”
According to the IMF, countries issuing reserve assets backing stablecoins, particularly the United States, have a responsibility to ensure that the emerging financial system limits adverse spillovers and protects the stability of the international monetary system.
The Fund said dollar-backed stablecoins could provide significant benefits to issuer countries by giving them access to a wider pool of global investors.
“Dollar-backed stablecoins create a new way for the U.S. government to tap into a worldwide stock of dollars outside the U.S. estimated at some $15 trillion,” the IMF said.
The development could allow issuer countries to reduce fiscal funding costs by expanding their global investor base. However, the IMF warned that such benefits could come at the expense of other countries if investors replace domestic bonds with stablecoin-related dollar assets.
“These savings can only help on the margin; they are no substitute for the responsible conduct of macroeconomic policy,” Georgieva stressed.
The warning comes amid growing concerns over public debt and borrowing costs across major economies. The IMF noted that 10-year sovereign bond yields in the United States, France and Japan were at their highest levels since 2007, 2008 and 1996 respectively.
The Fund said rising borrowing costs in advanced economies were pushing yield curves higher globally, with some emerging markets seeing the increases outweigh the benefits of previously achieved reductions in sovereign risk spreads.
The IMF also cautioned central banks against giving in to fiscal pressures, particularly as governments face rising debt-service costs.
“Central banks’ most critical role is to ensure inflation remains low and stable,” Georgieva said, warning that persistent inflationary pressures leave little room for compromising price stability.
Using a reference to the cowboy culture of the US state where the speech was delivered, the IMF chief warned against “monetary policy cowboys” attempting to rescue governments through unnecessarily low interest rates or renewed asset purchases.
Instead, the Fund called on governments to undertake difficult fiscal adjustments to restore credibility.
“What remains then, by elimination, is the fiscal heavy lifting: difficult social choices between lower primary expenditures and higher taxes, to deliver credible medium-term fiscal consolidation,” Georgieva said.
The IMF urged governments facing fiscal pressures to act without further delay, stressing that responsible macroeconomic management remains essential to maintaining confidence in financial innovation.
On stablecoins and cross-border payments, the Fund said technology could transform international transactions but warned that policymakers must ensure the benefits of innovation do not come at the expense of financial stability.
“Let’s make sure we put in place the right conditions to allow us to reap the benefits and manage the risks,” Georgieva concluded.
Source: International Monetary Fund (IMF)
