Working paper · 2026

Stablecoins and Fragility in Fixed Exchange Rate Regimes

Brandon Joel Tan · IMF Working Paper WP/26/144, Western Hemisphere Department · International Monetary Fund

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, destabilising when it is high.

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Research questionHow do dollar stablecoins affect welfare and run risk in economies with fixed or heavily managed exchange rates and rationed foreign currency?

MethodologyTheoretical 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.

Key findings

Under rationed foreign currency, the true degree of exchange-rate misalignment is unobserved; traditional parallel markets reveal it only imperfectly because information is dispersed across private bilateral trades.
Stablecoins both widen access to dollar-like claims outside the official allocation system and create a visible, high-frequency common price that aggregates order flow in one venue.
In the model, stablecoin market depth determines the precision of a common public signal about misalignment — producing a state-dependent welfare effect.
When misalignment is low, access and allocation gains dominate and stablecoins raise welfare.
When misalignment is high, a more precise public price compresses belief dispersion and synchronises exit, so a coordination externality can trigger runs and overturn the access benefit.
This supports a state-contingent policy: preserve low-cost access in normal states, but use temporary, targeted measures to manage large or run-like flows when misalignment is high.

Limitations: A theoretical single-author working paper (research in progress, not peer-reviewed); results follow from the stylised global-games setup rather than empirical estimation.

Topics: Dollarization & Emerging Markets · Peg Stability & Runs · Financial Stability & Systemic Risk

Cite this

Brandon Joel Tan (2026). Stablecoins and Fragility in Fixed Exchange Rate Regimes IMF Working Paper WP/26/144, Western Hemisphere Department.

BibTeX

@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},
}

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