Dollar-backed stablecoins can push local currencies lower, Bank of Korea study finds - CoinDesk

The Bank of Korea’s recent study adds a formal, central-bank voice to a growing debate: the quiet but persistent influence of dollar-backed stablecoins on emerging-market currencies. According to the research, when investors hold Tether or USD Coin instead of local bank deposits, they effectively reduce demand for the domestic currency. This substitution effect can create sustained downward pressure on the exchange rate, even if the stablecoin transaction itself never touches the traditional banking system.

For market participants, the relevance lies in the transmission mechanism. Stablecoins are often used as a safe haven during local market volatility or as a bridge for cross-border trades. The Bank of Korea’s finding suggests that their liquidity pools now function as a parallel dollar market, one that bypasses capital controls and central bank oversight. Consequently, a surge in stablecoin inflows can mimic the effects of capital flight, weakening the won or similar currencies without any visible shift in official reserves.

What to watch next is regulatory reaction. If other central banks follow Seoul’s lead, we may see tighter reporting requirements for virtual asset service providers or new limits on stablecoin-to-fiat conversions. For now, the study underscores a simple reality: digital dollar proxies have become a structural factor in currency dynamics, not a fringe tool.