Stablecoins have experienced significant growth and received increasing attention in recent years, acting as a bridge between volatile unbacked crypto assets and fiat currencies.
Through tokenization, these digital assets are used to increase efficiency in payments, particularly cross-border transactions, including reducing the costs and enhancing the speed of remittances.
However, amidst its wide use cases, Stablecoins also carry significant risks. The International Monetary Fund (IMF) has sounded a fresh alarm over the rapid expansion of stablecoins, cautioning that their growing use without the backing of clear and enforceable regulations could threaten global financial integrity.
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In a recent publication titled “Monetary and Capital Markets Department – Understanding Stablecoins”, the IMF warned that stablecoins, despite their promise of stability and efficiency, can easily become channels for money laundering, illicit financial flows, and regulatory arbitrage if governments fail to implement robust oversight frameworks.
The institution highlighted that stablecoins, like other crypto assets, appeal to criminals due to their pseudonymous nature, low transaction costs, and seamless cross-border capabilities. Many transactions occur through unhosted wallets outside regulatory oversight, meaning customer due diligence, sanctions screening, recordkeeping, and suspicious transaction reporting are often nonexistent.
The IMF further noted that anonymity-enhancing methods such as mixers and cross-chain bridges make it easier to obscure the origin, destination, and ownership of funds, enabling illicit activities and sanctions evasion.
Law enforcement efforts are complicated by the speed and irreversibility of blockchain transactions, the IMF warned. Criminals can rapidly transfer large amounts of value across borders, exploiting jurisdictional gaps that undermine detection and regulatory safeguards.
Some jurisdictions have already observed a shift from unbacked crypto assets to stablecoins for on-chain illicit activities, including terrorism-related financing, underscoring the urgency of implementing and enforcing Financial Action Task Force (FATF) standards.
The IMF also raised concerns about the profound legal uncertainties surrounding stablecoins. Their classification under private and financial law remains unclear, as they can be regarded as intangible property, contractual claims, securities, deposits, commodities, or e-money, depending on the jurisdiction. These inconsistent classifications expose users, issuers, and custodians to varying risks and obligations.
The Fund emphasized that insolvency scenarios create additional challenges, such that stablecoin holders may either be treated as unsecured creditors or granted property rights over reserve assets, depending on legal interpretation. This ambiguity makes strong segregation requirements and well-defined insolvency frameworks essential, especially for systemic stablecoin issuers operating across borders.
Operational and fraud risks add another layer of concern. The IMF noted that users are vulnerable to system failures, flawed processes, governance deficiencies, smart contract vulnerabilities, cyberattacks, and theft of private keys. Many consumers remain unaware of these risks, increasing the likelihood of financial loss.
Banks are not insulated from the risks either. Because stablecoin issuers often concentrate deposits in a small number of banks, both parties face significant concentration and liquidity risks. A sudden stablecoin run could trigger large withdrawals, creating liquidity strain on banks, while concerns about a bank’s health could undermine confidence in the stablecoin it backs.
To address these macrofinancial risks, the IMF reiterated its policy recommendations. Countries must protect monetary sovereignty, strengthen monetary policy credibility, and manage capital flow volatility. The Fund emphasized that crypto assets should not be granted legal tender or official currency status. Policymakers, it added, may need to adopt greater exchange-rate flexibility to preserve monetary autonomy and financial stability as crypto adoption grows.
Overall, the IMF’s message is clear. Without comprehensive regulation, the rapid rise of stablecoins could expose the global financial system to unprecedented legal, operational, and stability risks, making coordinated global action essential.