Dollar-Backed Stablecoins Press Local Currencies, Bank of Korea Finds
Dollar-backed stablecoins can push local currencies lower, Bank of Korea study finds
Demand for dollar-pegged stablecoins such as USDT and USDC can put downward pressure on national currencies once global crypto exchanges allow investors to buy the tokens directly with fiat money, according to a study by the Bank of Korea.
The research, conducted by Bank of Korea researchers Jihyun Kim and Sangheum Cho, analyzed market behavior after Binance introduced direct trading pairs between local currencies and dollar-backed stablecoins. The study focused on examples including the Brazilian real and Turkish lira paired against major stablecoins.
The key change was direct fiat-to-stablecoin access on a global venue. The authors found that after Binance listed these fiat-stablecoin pairs, local “stablecoin premiums” declined—meaning stablecoin prices on local exchanges moved closer to the implied prices from the spot foreign exchange market.
Specifically, the researchers found that stablecoin premiums fell by about 0.33 to 0.38 percentage points after Binance introduced fiat-stablecoin pairs. They attributed the narrowing premium to greater participation by global intermediaries, which made stablecoin supply more readily available and improved price alignment across venues.
The study also found that the impact extended beyond crypto markets. After the introduction of direct fiat-stablecoin trading, the degree to which stablecoin demand shocks were transmitted into foreign exchange rates increased. In other words, stronger demand for dollar-backed stablecoins was associated with depreciation in local currencies against the dollar.
Brazil was highlighted as a clear example of the mechanism at work. The study noted that buying pressure in Binance-paired currencies correlated with local currency depreciation, as market makers balanced positions created by higher demand for dollar-linked tokens.
Flows between exchanges appeared to reinforce this link. The researchers found that stablecoins tended to move from Binance to local exchanges when local stablecoin prices rose above Binance’s prices—an arbitrage-like pattern that can tighten connections between crypto markets and traditional FX markets.
The findings could matter for South Korea if domestic rules later allow greater corporate and foreign participation in crypto markets, which would likely deepen the links between won-based crypto trading and the broader foreign exchange market. The authors said that deeper FX liquidity and wider use of the won abroad could help the market absorb shocks as stablecoin activity becomes more closely tied to traditional currency markets.
