The next currency crisis may be harder to contain because of stablecoins, New York Fed report shows

A New York Federal Reserve study found that dollar stablecoins are more likely to flow into wallets tied to countries experiencing currency or banking crises.Wallets linked to countries experiencing some form of financial crisis were 1.8% more likely to receive dollar stablecoins during the week a crisis began, researchers Pablo Azar, Maryam Farboodi and Nish Sinha found in an August staff paper. Receipt volumes of these assets across these wallets also increased significantly during those periods.The findings provide evidence for a growing challenge facing central banks in economies under financial stress.Governments have traditionally relied on banks and other regulated intermediaries to enforce restrictions on foreign-exchange purchases and cross-border transfers.However, the advent of stablecoins has given households and businesses another route to dollar exposure that can operate outside those domestic banking channels.The research comes as the stablecoin market has grown beyond $300 billion and is expected to reach the trillions of dollars before the end of the decade. That expansion could make the alternative payment rails identified by the New York Fed increasingly relevant...