IMF warns stablecoins cannot replace fiscal discipline as global debt risks mount

The International Monetary Fund (IMF) has warned that the growing adoption of dollar-backed stablecoins must not be allowed to weaken fiscal and monetary discipline in countries whose currencies and assets underpin the digital tokens.

According to a statement released by the IMF, its Managing Director, KristalinaGeorgieva, who spoke at the Jackson Hole Economic Policy Symposium, titled “Navigating a financially more fluid world”, said countries issuing reserve assets backing stablecoins, particularly the United States, have a responsibility to ensure that the emerging financial system limits adverse spillovers and protects the stability of the international monetary system.

According to the IMF boss, dollar-backed stablecoins could create significant benefits for issuer countries by providing access to a wider pool of global investors.

“Dollar-backed stablecoins create a new way for the U.S. government to tap into a worldwide stock of dollars outside the U.S. estimated at some $15 trillion,” the IMF said.

The development could, all things being equal, enable issuer countries to reduce their fiscal funding costs by expanding the global investor base. However, the IMF warned that such gains could come at the expense of other countries if investors substitute their domestic bonds with stablecoin-related dollar assets.

“These savings can only help on the margin; they are no substitute for the responsible conduct of macroeconomic policy,” the IMF boss stressed.

The warning comes amid rising concerns over public debt and borrowing costs across major economies. The IMF noted that the 10-year sovereign bond yields of the United States, France and Japan were at their highest levels since 2007, 2008 and 1996 respectively.

The Fund said rising benchmark borrowing costs in advanced economies were lifting yield curves globally, with some emerging markets seeing the increase more than offset the benefits of hard-won reductions in sovereign risk spreads.

The IMF also cautioned central banks against succumbing to fiscal pressures, particularly where governments face mounting debt-service burdens.

“Central banks’ most critical role is to ensure inflation remains low and stable,” the IMF boss said, warning that persistent inflationary pressures leave little room for compromising price stability.

Using a reference to the cowboy culture of the U.S. state where the speech was delivered, the IMF chief warned against “monetary policy cowboys” riding to the fiscal rescue through unnecessarily low interest rates or renewed asset purchases.

Instead, the Fund called for governments to undertake the difficult fiscal adjustments required to restore credibility.

“What remains then, by elimination, is the fiscal heavy lifting: difficult social choices between lower primary expenditures and higher taxes, to deliver credible medium-term fiscal consolidation,” the IMF boss said.

The Fund urged governments facing fiscal pressures to act without further delay, warning that responsible macroeconomic management remains essential for maintaining confidence in financial innovation.

On stablecoins and cross-border payments, the IMF said technology could ultimately transform international transactions, but policymakers must ensure that the benefits of innovation do not come at the expense of financial stability.

“Let’s make sure we put in place the right conditions to allow us to reap the benefits and manage the risks,” the IMF boss concluded.