Domestic-currency stablecoins intended to curb reliance on dollar-backed tokens could instead make it easier for users to move funds into digital dollars, according to a senior International Monetary Fund (IMF) official.

On Friday, IMF First Deputy Managing Director Dan Katz said that once local and dollar stablecoins operate on the same blockchain infrastructure, users can convert between them through decentralized exchanges, liquidity pools or peer-to-peer swaps. 

In a speech at the University of Cape Town, Katz said the shift could move foreign exchange activity away from banks and currency dealers, reducing the friction that gives authorities tools to monitor and manage capital flows. 

“In this way, local-currency stablecoins might even accelerate the adoption of FX stablecoins,” he said.

Katz pointed to South Africa, where dollar-backed stablecoins have gained limited traction but rand-linked tokens have attracted even less demand. 

While it was too early to draw firm conclusions, he said many users may favor dollar tokens because of their liquidity, network effects and acceptance across platforms and borders. 

Katz said the risks vary by country. Stablecoins may largely replace existing dollar holdings in highly dollarized economies but could increase foreign-currency demand in countries where access to dollars is restricted and economic frameworks are weak. 

He urged authorities to bring onramps, offramps and onchain exchange points within regulatory frameworks. 

Related: Dollar stablecoins could improve FX access but amplify currency runs: IMF