BIS Study Finds Stablecoins Slip Past Capital Controls

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Capital controls can restrict access to dollar bank accounts, but they appear far less effective once those dollars move onto public blockchains.

A Bank for International Settlements working paper titled “Dollarisation and Monetary Control: What Lessons for the Rise of Stablecoins?”, published on July 21 by Boris Hofmann, Aaron Mehrotra and Jan Paulick, compares foreign currency deposits and dollar-backed stablecoin flows across more than 130 economies. It found that stablecoin inflows remain broadly similar whether countries impose foreign exchange restrictions or not. As with all BIS working papers, the findings represent the views of the authors rather than an official position of the institution.

The contrast is sharp. Restrictions on foreign currency accounts have historically reduced the amount of dollars held inside domestic banking systems. The same statistical relationship did not appear for stablecoins, which can circulate through public blockchains, crypto exchanges and wallets operating partly outside the reach of local banks.

The result points to a new form of digital dollarization. Residents can gain exposure to the US dollar without opening a foreign currency bank account or moving physical banknotes across a border. That access weakens one of the traditional pressure points governments have used to manage capital flight during periods of financial stress.

The Controls Still Work, but Mainly at Banks

Traditional capital controls depend heavily on regulated financial institutions. A government can require approval before a resident opens a dollar account, limit foreign currency purchases or restrict cross-border payments through domestic banks.

The study shows that those measures have historically influenced conventional dollarization. Across the countries examined, the median share of foreign currency deposits was around 5% when approval restrictions were in place, compared with more than 30% where residents faced no such requirement.

Stablecoin activity produced a very different pattern. During 2022 and 2023, median gross stablecoin inflows were between 1% and 1.5% of gross domestic product in economies with restrictions and in those without them.

The paper’s formal analysis reached the same conclusion. Broad capital controls, foreign exchange restrictions, payment limits and rules directed specifically at stablecoins showed no statistically significant effect on gross stablecoin flows. Account restrictions, by comparison, had the strongest negative effect on foreign currency bank deposits.

Why Stablecoins Behave Differently

A dollar deposit exists inside a bank. A dollar-backed stablecoin exists as a token that can be transferred across a blockchain at any time, provided the user has internet access and control of a compatible wallet.

That difference changes where restrictions can be applied. Banks can be ordered to reject a foreign currency transaction, freeze an account or demand regulatory approval. A token already held in a self-controlled wallet does not need to pass through that same domestic institution whenever it changes addresses.

The researchers identify public, permissionless blockchains and unhosted wallets as the likely explanation for the weak relationship between capital restrictions and stablecoin inflows. Access frequently occurs through entities beyond the domestic regulatory perimeter, leaving national authorities with less visibility than they have over bank deposits.

This does not make stablecoins completely immune to regulation. Issuers, centralized exchanges and fiat conversion services can still be supervised. The difficulty emerges after tokens enter the blockchain economy, where transfers can continue without repeatedly returning to domestic banking rails.

A Separate Dollar Market Is Taking Shape

Stablecoins are often presented as a digital replacement for existing dollar accounts. The findings suggest that the relationship is not that simple.

The researchers found limited evidence that stablecoin demand merely substitutes for foreign currency bank deposits. Countries with established dollar deposits did not consistently experience lower stablecoin inflows, while stronger stablecoin adoption did not reliably reduce dollar deposits.

The two channels may therefore serve partly different groups. Conventional dollar deposits remain tied to the banking system, while stablecoins may appeal to users who prioritize continuous access, blockchain settlement or the ability to hold dollar exposure without a traditional foreign currency account.

Rather than moving the same pool of dollars from one format to another, stablecoins may be expanding the population able to participate in dollarization.

Financial Stress Strengthens the Digital Dollar Channel

The study found that conventional and stablecoin dollarization share several underlying drivers. Demand rises where changes in exchange rates pass more strongly into domestic prices, making local currency weakness more visible to households and businesses.

Banking instability appears particularly relevant to stablecoins. In the emerging-market sample, a one-standard-deviation increase in the historical frequency of banking crises was associated with stablecoin inflows around 0.8% of GDP higher. For scale, average inflows for that emerging-market sample over the full 2017 to 2024 window were approximately 1.7% of GDP.

The result fits the structure of the market. When confidence in banks deteriorates, a dollar instrument that circulates outside the banking system becomes more attractive. Stablecoins can provide foreign currency exposure without requiring users to increase balances at the institutions experiencing the crisis.

The evidence is more nuanced for sovereign debt crises. These crises helped predict historical deposit dollarization, but they were not a significant predictor of stablecoin inflows over the shorter period studied. The researchers caution that the stablecoin dataset remains recent and that the relationships may become clearer as more observations become available.

The paper’s quarterly Latin American panel also showed a consistently positive relationship between inflation and stablecoin inflows. The connection was stronger statistically for stablecoins than for foreign currency deposits, suggesting that digital dollar demand may react quickly when purchasing power comes under pressure.

Once Dollarization Arrives, It Tends to Remain

The paper’s second major warning concerns persistence. Both traditional dollar deposits and stablecoin flows tend to remain elevated after they become established.

Historical evidence shows that deposit dollarization often survives even after the inflationary conditions that originally encouraged it have passed. Countries leaving high-inflation regimes did not experience a meaningful decline in foreign currency deposit shares during the following years.

The shorter stablecoin record points in the same direction. In the Latin American panel, previous-quarter stablecoin inflows were a significant predictor of future inflows. Dollar deposits were even more persistent, but the digital channel was already displaying the same tendency.

Once users have wallets, exchange access and established ways to acquire dollar tokens, improved domestic conditions may not automatically pull that activity back into the local currency.

The authors do not present this as an irreversible certainty. Country-level stablecoin flows are estimates, and the available history covers only a few years. Still, the early evidence resembles the long experience of bank dollarization closely enough to create a policy concern: preventing the shift may be easier than reversing it later.

What the Study Means for Monetary Control

Dollarization does not remove a central bank’s ability to set interest rates, but it can reduce the influence of those rates over the money residents actually choose to hold.

When households replace part of their local currency savings with dollar tokens, domestic monetary policy has less direct control over that portion of liquidity. During a crisis, stablecoin demand can also create an additional route for capital to leave the local currency even when authorities have restricted conventional foreign exchange transactions.

The paper does not claim that stablecoins have already broken monetary policy. Its historical analysis found that moderate deposit dollarization was associated with somewhat greater inflation risk, but there was little evidence of a large overall effect on monetary policy transmission.

The warning is more forward-looking. If stablecoin adoption grows, policy frameworks built around controlling banks and regulated payment providers may cover a shrinking share of the routes through which residents obtain and transfer dollars.

The scale is no longer negligible. The BIS estimated that total stablecoin market capitalization had reached around $320 billion by the end of May 2026, with growth overwhelmingly concentrated in US dollar-backed tokens.

Where MiCA Fits Into the Response

The European Union’s Markets in Crypto-Assets regulation, commonly known as MiCA, which Ripple cleared, is designed to regulate crypto issuers and service providers rather than impose traditional capital controls.

For stablecoins, MiCA establishes authorization, reserve, liquidity, custody and redemption requirements. Reserve assets must be managed separately from an issuer’s own estate, while holders receive legal redemption protections. Stablecoin provisions have applied since June 30, 2024.

The July 1, 2026 deadline concerned the end of MiCA’s transitional arrangements for crypto-asset service providers. It did not introduce the stablecoin reserve regime, which was already active.

MiCA can improve the quality of tokens offered through regulated European businesses and remove non-compliant assets from supervised platforms. The BIS findings expose a separate challenge: regulating issuers and exchanges does not ensure that every transfer on a permissionless blockchain passes through a domestic gatekeeper.

The Dollar Has Gained a New Distribution Network

The picture that emerges from the data is that stablecoins do not eliminate capital controls. They change the point at which those controls are most effective.

A government can still restrict banks, supervise exchanges and regulate stablecoin issuers operating within its jurisdiction. What it cannot easily reproduce is the old model in which nearly every movement into foreign currency had to cross a domestic banking checkpoint.

The policy problem therefore extends beyond whether a stablecoin is properly backed. It includes how tokens enter and leave local economies, how self-controlled wallets interact across borders and how authorities respond when dollar demand moves onto networks that remain active around the clock.

The authors stop short of prescribing a single solution. Their immediate conclusion is that stable domestic monetary and financial conditions can help prevent dollarization from taking hold, while legacy foreign exchange restrictions may prove inadequate once stablecoin use becomes established.

That is the larger shift captured by the study. Stablecoins are not only a faster version of dollar deposits. They are creating a parallel distribution system for the dollar, one that reaches beyond banks and does not respond to national financial barriers in the same way.