A global-games model of how dollar stablecoins affect parallel FX markets under fixed or managed exchange rates: stablecoins both widen access to foreign currency and create a common public price that can coordinate runs, so their welfare effect is state-dependent — beneficial when misalignment is low, destabilizing when it is high.
Directly informs the site's Dollar & EM / dollarization and peg-stability coverage — a rigorous IMF treatment of when dollar stablecoins help versus destabilize pegged and managed-exchange-rate economies.
When misalignment is low, access and allocation gains dominate, so stablecoins raise welfare. When misalignment is high, the coordination externality becomes more costly.
Stablecoins make dollar-like claims easier to access outside the official allocation system, but they also create a visible, high-frequency price that aggregates order flow in a common venue.
| Research question | How do dollar stablecoins affect welfare and run risk in economies with fixed or heavily managed exchange rates and rationed foreign currency? |
| Methodology | Theoretical global-games model in which households observe dispersed private signals about exchange-rate misalignment while stablecoin market depth sets the precision of a common public signal. |
| Limitations | A theoretical single-author working paper (research in progress, not peer-reviewed); results follow from the stylised global-games setup rather than empirical estimation. |
This paper studies how dollar stablecoins affect parallel foreign-exchange markets in economies with fixed or heavily managed exchange rates. When foreign currency is rationed, the true degree of exchange-rate misalignment is not directly observed. Traditional parallel markets reveal it only imperfectly because information is dispersed across bilateral and often private trading opportunities. Stablecoins make dollar-like claims easier to access outside the official allocation system, but they also create a visible, high-frequency price that aggregates order flow in a common venue. I develop a global-games model in which households observe dispersed private signals about misalignment, while stablecoin market depth determines the precision of a common public signal. Stablecoins generate a state-dependent welfare effect. They expand access to foreign-currency and can improve allocation by making beliefs about misalignment more informative, but the same public price can also coordinate runs by making beliefs and actions more synchronized. When misalignment is low, access and allocation gains dominate, so stablecoins raise welfare. When misalignment is high, the coordination externality becomes more costly: a more precise public signal compresses belief dispersion, strengthens coordinated exit incentives, and can overturn the access benefit. This points to a state-contingent approach that preserves low-cost access in normal states while using temporary, targeted measures to manage large or run-like flows when misalignment is high.
Brandon Joel Tan (2026). Stablecoins and Fragility in Fixed Exchange Rate Regimes IMF Working Paper WP/26/144, Western Hemisphere Department.
@techreport{tan2026stablecoinsfixedexchangeratefragility,
title = {Stablecoins and Fragility in Fixed Exchange Rate Regimes},
author = {Brandon Joel Tan},
year = {2026},
institution = {International Monetary Fund},
howpublished = {IMF Working Paper WP/26/144, Western Hemisphere Department},
url = {https://www.imf.org/en/publications/wp/issues/2026/07/10/stablecoins-and-fragility-in-fixed-exchange-rate-regimes-577641},
note = {Indexed by Stablecoin Beat},
}