BIS Warns Stablecoins Are Breaking Capital Controls as Dollarization Accelerates

The Bank for International Settlements (BIS) says U.S. dollar-pegged stablecoins are repeating a pattern central banks have watched for decades, and the regulatory tools that used to work no longer apply.

Key Takeaways

• BIS researchers Hofmann, Mehrotra and Paulick studied 130+ economies and stablecoin data from 184 countries since 2017.
• Capital controls cut bank dollarization by up to 32 percentage points but showed no effect on stablecoin inflows.
• Stablecoin market capitalization has nearly tripled since 2023, led by USDT and USDC.

A Bank for International Settlements (BIS) working paper published in July 2026 by BIS economists Boris Hofmann, Aaron Mehrotra, and Jan Paulick compares the rise of stablecoins in emerging and developing economies to “deposit dollarisation,” the long-standing practice of holding savings in foreign-currency bank accounts. The paper draws on data covering more than 130 economies from 1990 to 2019 for deposit dollarisation, and stablecoin flow data from Chainalysis covering 184 countries from 2017 to 2024.

Stablecoin market capitalization has nearly tripled since 2023, driven almost entirely by the two largest U.S. dollar-pegged tokens, Tether’s USDT and Circle’s USDC, according to the paper. Those two tokens make up more than 80% of the total stablecoin market capitalization.

Same Drivers, Different Outcomes

The researchers found that deposit dollarization and stablecoin inflows respond to similar economic pressures. Both rise when a country’s exchange rate passes through strongly into local inflation, and both climb during financial crises.

One difference stood out. Banking crises are linked to higher stablecoin inflows, but not to higher deposit dollarization. Sovereign debt crises show the opposite pattern, pushing up deposit dollarization by 4 to 6 percentage points over a decade, with little effect on stablecoin inflows.

Hofmann, Mehrotra and Paulick wrote that the banking-crisis link makes sense given that stablecoins operate outside the traditional banking system, becoming more attractive when banks are the source of instability.

Gross stablecoin inflows relative to GDP were essentially zero across countries in 2019. By 2021, the median inflow rose to about 1.2% of GDP, with some countries seeing inflows near 7% of GDP. By 2023, the median had eased to roughly 0.9% of GDP.

Capital Controls Don’t Reach Stablecoins

The paper’s clearest finding for policymakers involves regulation. Countries that require approval for residents to hold foreign-currency bank accounts saw deposit dollarization ratios around 25 to 32 percentage points lower than countries without those rules, based on data from 2000 to 2016.

Stablecoins showed no such response. The researchers found no statistically significant relationship between restrictions on cross-border stablecoin use and the size of stablecoin inflows.

The paper attributes this to where stablecoins circulate. Bank deposits sit inside regulated institutions that supervisors can reach directly. Stablecoins move on public blockchains and can sit in unhosted wallets, outside the reach of the same rules.

Dollarization Is Hard to Undo

Both forms of dollarization showed high persistence in the data. Once a country’s deposit dollarization ratio rises, it tends to stay elevated even after the inflation or crisis that triggered it has passed. Autoregressive estimates put the persistence coefficient near 0.8 across both advanced and developing economies, a figure that has not changed since 2000.

The researchers also looked for signs that stablecoins are simply replacing bank deposits as a dollar-holding vehicle. They found limited evidence of that kind of substitution, suggesting stablecoin demand in emerging markets is coming from different users, possibly younger and more tech-focused, rather than shifting existing dollar deposits into crypto form.

Inflation Risk Is Not a Straight Line

Using an inflation-at-risk model applied to 91 emerging and developing economies, the BIS authors found that the relationship between dollarisation and inflation is not linear. Countries with very low dollarization showed no meaningful inflation effect. Countries with moderate dollarization showed somewhat higher inflation risk across the distribution. Countries with the highest dollarization levels showed lower inflation risk, particularly at the upper end of the distribution.

The authors describe this as highly dollarized economies effectively importing the credibility of the U.S. dollar as an anchor. The paper found limited evidence that dollarization changes how monetary policy shocks pass through to growth, inflation, or exchange rates.

What Comes Next

The authors caution that stablecoin adoption may not keep expanding at its recent pace, and that lessons from decades of bank dollarization may not fully apply to a system built to operate outside supervised finance. Still, the paper argues that if stablecoin growth in emerging markets continues, central banks and finance ministries face a channel for U.S. dollar exposure that existing capital-flow tools were not built to manage.