Surge in Stablecoins Threatens ‘Cryptoization’ in Developing Economies

As the adoption of stablecoins and cryptocurrencies accelerates globally, emerging markets encounter increasing threats to monetary sovereignty and financial stability, according to a recent report by Moody’s Ratings.

The credit rating agency cautioned that the widespread adoption of stablecoins—tokens pegged 1:1 to another asset, typically a fiat currency like the US dollar—could diminish central banks’ authority over interest rates and exchange rate stability, a trend referred to as “cryptoization.”

Banks might also “experience deposit erosion if individuals transfer savings from domestic bank deposits to stablecoins or crypto wallets,” the report stated.

Moody’s indicated that digital asset regulations across the globe remain fragmented, with less than one-third of countries having implemented comprehensive rules, leaving many economies vulnerable to volatility and systemic shocks.

While clearer regulations and improved investment avenues often drive adoption in developed nations, Moody’s noted that the most rapid growth is occurring in emerging markets—especially in Latin America, Southeast Asia, and Africa—where usage is largely fueled by remittances, mobile payments, and inflation hedging.

“[…] the swift expansion of stablecoins, despite their perceived safety, introduces systemic vulnerabilities: a lack of sufficient oversight could result in runs on reserves and necessitate costly government bailouts if pegs fail,” Moody’s expressed.

The agency asserted that this divergence not only underscores potential for financial inclusion but also the escalating risks of financial instability if regulatory oversight fails to evolve.

In 2024, global ownership of digital assets reached an estimated 562 million individuals, a 33% increase from the prior year.

Related: Singapore New Crypto Rules: $200K Fines, Jail Risk

Regulations in Europe, the US, and China Progress

While much of the world still lacks clear regulations regarding cryptocurrency and stablecoins, Europe, the United States, and even China have made strides over the past year.

As of December 30, 2024, following a phased rollout, the remaining provisions of the EU’s Markets in Crypto-Assets (MiCA) framework were enacted. MiCA serves as the bloc’s regulatory framework for cryptocurrency, standardizing licensing for service providers and establishing reserve and disclosure standards for stablecoins.

In the United States, the GENIUS Act was enacted on July 18, setting enforceable standards for the issuance and backing of stablecoins.