Stablecoins and tokenisation could make cross-border payments faster and cheaper while widening access to global finance, but the same technologies could accelerate financial risks and place greater pressure on policymakers, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), has warned.
Speaking at the Jackson Hole Economic Policy Symposium, Georgieva said financial innovation had already transformed domestic payment systems by improving speed, convenience and affordability, but progress in cross-border payments remained uneven, with transactions still too costly and slow in many parts of the world.
She said emerging technologies, particularly distributed ledger technology, tokenisation and stablecoins, could potentially trigger a systemic transformation of global payments, although their long-term impact remains uncertain.
“Blockchain is still a small experiment in a vast global payments picture,” Georgieva said, adding that tokenisation and stablecoins could nevertheless help “fluidify” global finance, with stablecoins showing particular potential to reduce the cost and time involved in large-value cross-border payments.
Georgieva warned that faster-moving global finance could also mean faster-moving financial shocks, leaving policymakers with less room for error. The more fluid the system becomes, she said, the greater the premium on sound regulation and disciplined macroeconomic management.
She singled out three challenges: coordinating global rules for tokenisation and stablecoins; protecting emerging and developing economies from new monetary and financial pressures; and preserving fiscal discipline in countries whose reserve assets back stablecoins.
Georgieva said restrictions on correspondent banking and high transaction costs currently limit the economic participation of countries, businesses and households, while sometimes diverting payments into informal channels.
She pointed to several initiatives seeking to connect national payment systems, including the European Central Bank’s TIPS system, ASEAN’s Project Nexus, the Southern African Development Community’s TCIB and the Bank for International Settlements’ Project Agora.
However, she said the bigger question was whether private-sector financial innovation could deliver a global transformation in cross-border payments.
Stablecoins create new risks
While stablecoins could improve payment efficiency, Georgieva said their expansion could also create challenges for banks, governments and central banks.
She argued that stablecoins marketed as blockchain-based equivalents of cash must command confidence that they can be redeemed at par, requiring strict rules governing reserve pools and, ideally, internationally harmonised standards.
She also warned against regulatory arbitrage, arguing that similar financial instruments should face similar regulatory norms to ensure fair competition.
Emerging markets face more pressures
For emerging market and developing economies, Georgieva said stablecoins could introduce additional macroeconomic risks by facilitating tax evasion, encouraging currency substitution and weakening the effectiveness of capital controls.
She noted that roughly one-quarter of IMF member countries still use capital controls, meaning the wider adoption of stablecoins could make those restrictions more porous.
If that happens, she said, countries could face greater currency substitution, volatile capital flows, exchange-rate instability and reduced monetary sovereignty.
Central banks would therefore need to strengthen supervision of domestic banking systems, regulate domestic stablecoin intermediaries appropriately and increase foreign-exchange buffers.
The IMF chief also warned that governments could no longer rely as heavily on financial repression to contain debt-servicing costs if technology increasingly opens previously closed financial systems.
That, she said, would make fiscal adjustment unavoidable, including broader tax bases and smaller primary deficits.
Georgieva also turned her attention to countries whose currencies or sovereign assets could underpin stablecoins, particularly the United States.
Dollar-backed stablecoins, she noted, could give the US government access to a much wider pool of dollar holdings outside the country, estimated at about $15 trillion.
Stablecoins, she said, cannot replace sound fiscal policy.
“Credible macro policy setting in issuer countries is a necessary condition for trust in financial innovation,” Georgieva said.
She highlighted rising public debt pressures across advanced economies, noting that 10-year sovereign bond yields in the US, France and Japan were at their highest levels since 2007, 2008 and 1996 respectively.
Higher benchmark borrowing costs, she said, lift yield curves globally and can offset hard-won reductions in emerging-market borrowing spreads.
No “monetary policy cowboys”
Against the backdrop of rising fiscal pressures, Georgieva warned that central banks must resist pressure to ease monetary policy simply to help governments manage their debt burdens.
She reiterated that the primary responsibility of central banks is to keep inflation low and stable, arguing that persistent inflationary pressures in several major economies leave little room for policies that compromise price stability.
Using an analogy drawn from Wyoming’s rodeo culture, she said there should be “no monetary policy cowboys riding to the fiscal rescue,” either through lower-than-appropriate interest rates or fresh asset-purchase programmes.
The burden, instead, falls on governments to make difficult fiscal choices involving expenditure reductions and higher taxes to achieve credible medium-term consolidation.
“Our advice: delay no longer,” she said.
Despite the risks, Georgieva remained optimistic about the longer-term potential of financial innovation.
She argued that technology has repeatedly overcome geographic and political fragmentation, citing air travel, the internet and GPS as examples of technologies that have made the world more interconnected.
Cross-border payments, she said, have yet to experience a comparable transformation.
But with the economic case for faster, cheaper and more accessible international payments becoming stronger, she expressed confidence that such a transformation would eventually occur.
The challenge for policymakers, she said, is to establish the regulatory and macroeconomic conditions that allow the benefits of financial innovation to emerge without allowing faster transmission of financial risks to destabilise economies.
