Dollar-backed digital money could make poor countries lose control of their currency

A new paper from the Bank for International Settlements (BIS) warns that stablecoins, which are digital currencies pegged to stable assets like the US dollar, could undermine the financial stability of developing economies. If these digital dollars become widely used, it could make it harder for these countries to manage their own money supply and exchange rates.

For years, economists have worried about 'dollarization,' where people in unstable economies prefer to hold US dollars over their local currency. This paper shows how stablecoins could accelerate that trend, making it easier and faster for people to switch to digital dollars. This means governments in these countries could lose a key tool for managing their economies: controlling their own money.