“The use of foreign currency-denominated stablecoins, especially in cross-border contexts, could lead to currency substitution and potentially undermine monetary sovereignty, particularly in the presence of unhosted wallets,” the organization added.
Aha! If stablecoins make currency switching costs low, what stops the stablecoin from being replaced by another currency with better properties? I feel like I haven't heard that stated so plainly before.
If foreign currency-denominated stablecoins become entrenched through payment services, local alternatives like a central bank digital currency, or CBDC, could have difficulty competing, the report stated.
The CBDC ship has sailed afaict.
To safeguard monetary sovereignty, the IMF recommends that nations implement frameworks preventing digital assets from being recognized as official currency or legal tender. That status would prevent people from being able to refuse digital assets as a form of payment.
Meaning, let's prevent people from fleeing from our abuse so we can keep the world ordered as it is.
“Significant growth in stablecoins could cause retail deposit outflows, diminishing an important source of funding for banks and leaving them with more volatile funding overall,” the ECB said.
Someone told me a few months ago that stablecoins compete with banks. It's a new enough concept (to me) that I'm surprised to hear them say it.