New Delhi, 11 August 2026 :
Imagine a country where prices rise rapidly every year and the value of the local currency keeps falling. If the same 100 rupee note cannot buy as much as it did yesterday, families would either have to buy less or spend more money to buy the same thing. Since planning family finances would become tougher, households would look to put their savings in something that can maintain a stable value, precisely because their currency won’t.
In reality, this happens at both national and international scales. In emerging markets and developing economies (EMDEs) that often experience high inflation due to economic instability, households often choose to put their savings in the US dollar. Economists call this dollarisation. It is the practice of holding savings in US dollars instead of the local currency.
Traditionally, this meant opening a foreign currency bank account or keeping dollar deposits with a bank. However, today, technology is changing how this happens. Instead of visiting a bank, people can buy dollar-backed stablecoins through a smartphone and store them in a digital wallet.
The Bank for International Settlements (BIS) examines what this shift could mean for EMDEs in a recent paper. The paper finds that the reasons people choose to save in US dollars have not changed very much. High inflation, local currencies that rapidly lose value, and periods of economic uncertainty continue to encourage people to look for a more stable alternative. Stablecoins, however, make this easier than before.
In the past, people wanting to hold dollars usually had to rely on banks. Today, stablecoins allow them to hold digital dollars without depending on the domestic banking system. This gives people another way to protect their savings when confidence in local banks begins to weaken. The researchers also find that once people begin saving in US dollars, they rarely switch back quickly. Historical evidence shows that even after inflation falls and economic conditions improve, people often continue holding part of their savings in dollars.
Interestingly, the study shows that stablecoins are not simply replacing traditional dollar bank deposits. This means both forms of saving — in US dollars and through dollar-backed stablecoins — could continue to grow side by side. In fact, stablecoins seem to be attracting a different group of users, such as those who are more tech-savvy. For governments and central banks, this means that an existing pattern of dollarisation could increasingly take place through a financial system they have less direct control over.
Traditionally, governments have managed the movement of foreign money through banks and other regulated financial institutions. Measures such as restricting foreign currency accounts or capital flows work because banks operate within the country’s regulatory system. However, stablecoins are different. They move across public blockchain networks and can be stored in private digital wallets, which makes them much harder to regulate using these traditional tools.
For smaller economies, the implications could be significant. If more people begin saving in dollar-backed stablecoins, governments may find it harder to influence how money moves through their own financial systems. Managing the money supply, stabilising the local currency, and responding to financial shocks could become more challenging if a growing share of household savings sits outside the traditional banking system.
At the same time, the BIS paper urges caution against drawing firm conclusions too early. Looking at decades of experience, the authors find little evidence that people saving in US dollars, by itself, makes it much harder for governments and central banks to manage inflation and support their economies. The effect is not uniform; it depends on factors such as the extent of dollar use and the broader economic environment.
The authors therefore do not argue that stablecoins are bad for economies. In fact, they acknowledge that stablecoins may not become as widely used as some expect, and that past experience with traditional dollar deposits may not fully explain how stablecoins will evolve. As countries continue to experiment with digital assets, the authors conclude that much more research will be needed to understand how these new forms of digital dollars could shape financial stability and policy in the years ahead.
Indian policymakers too should monitor trends around dollar-backed stablecoins to understand how they are affecting household savings, cross-border capital flows and the larger financial system. That evidence will be important as India evolves its VDA framework, allowing it to address emerging risks without unnecessarily restricting useful digital asset innovation.