Monetary Sovereignty in the Age of Stablecoins
Oliver Wyman identifies three channels through which stablecoins erode monetary sovereignty: reduced policy traction, deposit substitution, and crisis acceleration. All three concentrate in holding behavior, not payment transit.
By Anton Titov, Founder · Plexo Institute
A transit versus holding framework for stablecoin policy: when stablecoins are payment rails they can coexist with sovereign systems; when they become savings instruments they create sovereignty risk.
Oliver Wyman identifies three channels through which stablecoins erode monetary sovereignty: reduced policy traction, deposit substitution, and crisis acceleration. All three concentrate in holding behavior, not payment transit.
Reading Guide
Four ideas to anchor the policy distinction between stablecoin transit and stablecoin holding.
This Perspective asks whether stablecoins can coexist with sovereign monetary systems. Its answer depends on use. A stablecoin used for fiat-in, fiat-out payment transit has a different monetary effect from a stablecoin held as savings.
Oliver Wyman identifies three mechanisms: weakened interest rate transmission when savings escape into USDT, bank funding pressure when deposits migrate to stablecoin balances, and faster crisis dynamics when capital flight goes on-chain. None of the three operates on transit-only flows.
A stablecoin used for fiat-in, fiat-out payment for minutes does not substitute deposits or weaken policy. The same stablecoin held as savings does both. Treating both uses under one regime is the most common policy error, and the worst outcome: blocked formal transit plus unregulated informal holding.
China represents the ban model. Singapore initial and Chile represent transit-only. UAE, ADGM, and the UK proposal represent contained holding. EU MiCA and the US GENIUS Act represent a more permissive model. Most emerging markets before 2024 represent the unregulated state. Each is a different combination of corridor openness, holding restrictions, yield permission, and institutional access.
A non-US citizen holding USDC in El Salvador reduces Salvadoran monetary sovereignty, not US Federal Reserve sovereignty. From Washington this is a sovereignty dividend; from Buenos Aires it is a sovereignty risk. Both jurisdictions are acting rationally within their own calculus.
The Question
The question is not whether stablecoins exist. The question is what they are used for in each jurisdiction.
Can stablecoins coexist with sovereign monetary systems? The global policy conversation has polarized between two positions: stablecoins are existential threats to monetary sovereignty, or stablecoins are enabling infrastructure for dollar dominance. Both positions ignore the technical distinction that determines the policy outcome. The question is not whether stablecoins exist. The question is what they are used for in each jurisdiction.
All concentrate in holding, not transit [1].
Analysis preserved from the Notion article [2].
A useful policy question is whether a stablecoin is being used in a payment route or held over time.
Transit: stablecoin used as a payment rail. Fiat enters, value can transit briefly, and fiat exits. This design may limit direct retail holding exposure, but it does not establish zero deposit substitution or zero dollarisation pressure.
Store of value: stablecoin held as savings. That can raise deposit-substitution and monetary-policy questions that require jurisdiction-specific evidence.
The legal treatment of both uses must be tested against the activity, issuer, customer, custody model, and current regulatory perimeter; a single label cannot determine the result.
Channel 1: Monetary Policy Traction
When savings move into foreign-currency stablecoins, domestic interest rate transmission weakens.
If households and businesses hold foreign-currency stablecoins as primary savings, domestic interest rate transmission weakens. When the central bank raises rates to cool inflation, savers who hold USDT do not feel the signal. Monetary policy becomes less effective. The mechanism is straightforward: rate changes transmit only through balances that remain exposed to the local monetary system.
Stablecoin Savings Bypass The Rate Signal
When balances leave local deposits, central-bank policy reaches less of the money people actually hold.
Central bank
Rate signal
The policy tool only reaches balances still exposed to the domestic monetary system.
Local deposits
Savers feel rate changes through banks, credit, and deposit pricing.
USDT savings
Foreign-currency stablecoin balances sit outside the local rate channel.
A stablecoin payment that starts in local fiat, transits for minutes, and ends in local fiat does not compete with domestic deposits. The sender pays in naira; the recipient receives yuan. No household or business holds stablecoin as savings.
This is why the transit/holding distinction matters. The same instrument can erode sovereignty if held, or strengthen formal corridors if used for transit only. Policy that blocks transit does not reduce holding; it pushes holding into informal channels where the central bank loses visibility entirely.
Channel 2: Bank Deposit Substitution
When stablecoin balances substitute for bank deposits, bank funding costs rise and credit availability weakens.
If households and businesses migrate savings from bank deposits into stablecoin balances, bank funding costs rise. Banks must pay higher interest to retain deposits or replace them with wholesale funding. The result is higher lending rates, reduced credit availability, and weaker bank balance sheets in aggregate.
The pool at risk of substitution in this analysis.
The source explicitly notes actual rates are poorly measured.
Bank deposits have two things stablecoins typically do not offer: domestic currency denomination and interest. But in an inflationary environment, domestic currency denomination becomes a liability, not an asset. Yield-bearing stablecoins, where permitted, can offer competitive interest.
The GENIUS Act explicitly prohibits yield on payment stablecoins precisely to prevent this substitution. The UK Bank of England proposed framework similarly restricts yield for systemic stablecoins. These are not anti-stablecoin moves. They are pro-banking-sector defenses designed to preserve the deposit base.
Jurisdictions that permit stablecoin holding have converged on a common set of controls:
Balance caps: transitional limits on stablecoin holdings per licensed entity, calibrated to payment volume.
No yield: prohibition on interest-bearing stablecoin balances, including the GENIUS Act and UK Bank of England proposal.
Custodial-only: stablecoins held only in licensed financial institution infrastructure, with ADGM FRT as the source example.
Aggregate reporting: real-time central bank visibility into total holdings.
These controls preserve the settlement utility of stablecoins while neutralizing their deposit-substitution potential. The regulator retains authority to tighten or relax based on evidence.
Channel 3: Crisis Acceleration
Stablecoins compress capital-flight dynamics from days or weeks into minutes.
During a currency crisis, capital flight historically took days or weeks. Physical cash had to be moved, real estate had to be liquidated, and bank wires had to clear. Stablecoins compress this to minutes. Crisis dynamics that used to unfold over a month can now unfold over an afternoon.
Capital flight during currency crises is not new. What stablecoins change is the speed and the visibility.
Speed: a USDT transfer on TRON completes in under 60 seconds. A Telegram OTC transaction completes in minutes. Compared to days or weeks for physical cash or bank wires, this is a step-change.
Visibility: on-chain transactions are timestamped and traceable. A central bank with appropriate tools can observe capital flight in real time, at the aggregate level if not at the individual level.
The 2022-2023 Ghana cedi depreciation, Nigeria's naira devaluations, and Argentina's peso instability all showed measurable spikes in on-chain stablecoin volume during the crisis windows. The correlation is not proof, but the pattern is consistent: crises now have an on-chain component.
A central bank that can see capital flight in real time has more policy options than one that cannot. Informal flight through hawala or physical cash is invisible. Stablecoin flight is observable.
This reframes the policy question. Banning stablecoins does not stop capital flight. It pushes it back into invisible channels. Permitting stablecoins under supervision converts invisible flight into observable flight, giving the central bank data it previously lacked.
The FATF Travel Rule, properly enforced, requires licensed operators to attach originator and beneficiary data to qualifying cross-border transfers. This is the visibility infrastructure that a sovereign supervisory regime requires.
The Sovereignty Spectrum
Every stablecoin policy regime makes trade-offs across corridor openness, holding restrictions, yield permission, and institutional access.
No jurisdiction faces binary choices. Every stablecoin policy regime makes trade-offs across four dimensions: corridor openness, holding restrictions, yield permission, and institutional access. The combinations produce distinct sovereignty profiles.
| Regime type | Transit | Holding | Yield | Example |
|---|---|---|---|---|
Ban | Blocked | Blocked in theory | N/A | China, pre-2021 India |
Transit-only | Licensed operators | Prohibited for retail | N/A | Singapore initial, Chile |
Contained holding | Licensed operators | Licensed FIs, caps, custodial | Prohibited for payment stablecoins | UAE, ADGM, UK proposal |
Permissive | Licensed operators | Broad retail access | Permitted with disclosures | EU MiCA, US GENIUS Act |
Unregulated | Informal only | Informal only | No framework | Most EM pre-2024 |
Transit-only regimes, including Singapore's initial approach and Chile's fintech law in this analysis, permit stablecoin activity exclusively as payment infrastructure. Licensed operators can on-ramp and off-ramp, but retail users cannot hold stablecoin balances. The stablecoin exists only during the transit window.
This eliminates all three Oliver Wyman channels by design:
Channel 1, policy traction: no holding, no savings substitution, no interest rate transmission loss.
Channel 2, deposit substitution: fiat returns to the banking system at off-ramp, and deposits are not drained.
Channel 3, crisis acceleration: transit flows do not convert to held positions, so no flight-capable balances accumulate.
The cost is that transit-only regimes do not capture the monetary-composition benefits of sanctioned dollar-reserve instruments, as the GENIUS Act explicitly seeks for US policy.
The US approach under the GENIUS Act, as framed in this analysis, is qualitatively different. It permits broad retail holding of payment stablecoins issued under US oversight. The policy bet is that dollar-denominated stablecoins extend dollar dominance globally at negligible cost to domestic monetary sovereignty.
For the US, the channel 1, 2, and 3 risks run in reverse. A non-US citizen holding USDC in El Salvador reduces the sovereignty of the Salvadoran central bank, not the US Fed. From a US perspective, this is a sovereignty dividend, not a risk.
This asymmetry explains why emerging-market central banks and the US Treasury have opposite preferences on the same instrument. Both are acting rationally within their own sovereignty calculus.
The Evidence-Based Path
The defensible policy path is sequential: start narrow, observe, and expand based on evidence.
No framework can determine the optimal regime for every jurisdiction in advance. Plexo proposes a staged approach: start with a bounded activity, observe evidence, and decide whether broader permissions are warranted. This is a policy proposal, not a claim that jurisdictions have converged on one sequence.
Policy Can Expand Only After Visibility
Transit data comes first, contained holding follows, and caps let the regulator tighten if evidence turns.
- 0
Blind flow
Activity grows outside the supervisor view.
- 1
Transit only
Licensed payments create corridor data.
- 2
Contained holding
Caps and reporting test balances.
- 3
Policy turn
Evidence decides expand or tighten.
The sequential approach has a critical property: it is reversible. If Stage 2 containment controls prove insufficient and deposits drain despite caps, the regulator can tighten back to Stage 1. If Stage 1 proves overly restrictive without creating visible harm, controls can relax.
This is how central banks normally operate: evidence in, adjustment out. Stablecoin policy should operate the same way. The current fixation on single permanent regimes, either full ban or full permission, ignores that monetary policy is always a ratchet of adjustments, not a one-time decision.
Counter-Arguments & Limitations
Where the transit-versus-holding framework can be challenged.
Every perspective has boundaries. The transit/holding framework is analytically clean. The strongest critics argue it is operationally porous and overweights monetary sovereignty relative to other policy frames.
The argument: a licensed operator that on-ramps users into stablecoin can in practice provide informal holding through omnibus accounts, lending products, or yield wrappers, even where retail holding is technically prohibited. Users who experience stablecoin speed and FX stability may develop demand for holding, and unauthorised channels can emerge. The conceptually clean line can leak under operational pressure.
The response requires evidence, not an assumed outcome: inspect current supervisory powers, provider terms, custody, reporting, and enforcement in the named jurisdiction. This framework does not claim that a group of jurisdictions has measured or contained leakage to a common level.
The argument: this analysis treats monetary sovereignty as the dominant policy frame. But many emerging-market jurisdictions also face capital controls, including FX rationing and repatriation rules, banking-sector currency mismatches, and macroprudential limits that interact with stablecoin policy in ways the three-channel model does not capture. A jurisdiction may permit holding for monetary reasons but ban it for capital-control reasons.
Valid limitation. The three-channel model is necessary but not sufficient. A complete policy framework integrates monetary sovereignty with capital-account management, banking-sector stability, and macroprudential goals. Most emerging-market jurisdictions that have moved past Stage 0 have done so by integrating these frames simultaneously, not sequentially. The Oliver Wyman framework should be read as one input into a multi-frame policy decision, not as a complete decision rubric.
About the Author
About This Perspective
Scope, disclosure, and method.
Plexo builds a Stablecoin Clearing Network and marketplace for licensed financial institutions, structuring multi-party cross-border settlement, compliance packaging, and liquidity coordination across complex corridors. Plexo Institute publishes our perspective on the market we operate in. Our analysis reflects the vantage point of an infrastructure builder, not a neutral observer.
Sovereignty channel framework based on Oliver Wyman (2026), Monetary Sovereignty in the Age of Stablecoins. Regulatory regime mapping drawn from EY Global Stablecoin Regulation Comparison (Sep 2025) cross-referenced with primary legislation: MiCA, GENIUS Act, UAE PTSR, ADGM FRT, MAS PSA, and UK BoE consultation paper. Deposit substitution ranges are hypothesized, not measured; empirical data on actual substitution rates in emerging markets is limited. On-chain crisis correlation data comes from Chainalysis geography reports. The paper does not advocate a specific regime; it maps the decision space each jurisdiction faces.
Continue Reading
Transit vs. store of value - the distinction that separates zero-risk from existential risk.
A staged policy proposal - questions to test before expanding from bounded transit to broader holding.
What transit looks like - fiat in, stablecoin for minutes, fiat out.
References
Oliver Wyman, Monetary Sovereignty in the Age of Stablecoins (2026)
EY, Global Approaches to Stablecoin Regulation (Sep 2025)
Chainalysis, 2024 Geography of Cryptocurrency Report; LATAM Crypto Adoption
Reuters, Turkey bans crypto payments (2021); Tap Protocol research estimates
US Senate, GENIUS Act (2025); Brookings, Next steps for GENIUS (2025)
Bank of England, Proposed Regulatory Regime for Sterling-Denominated Systemic Stablecoins (2025)
FATF, Updated Guidance for VAs and VASPs (2021)
References
7 references- Monetary Sovereignty in the Age of Stablecoins — Oliver Wyman
- Global Approaches to Stablecoin Regulation — EY
- 2024 Geography of Cryptocurrency Report; LATAM Crypto Adoption — Chainalysis
- Turkey bans crypto payments — Reuters; Tap Protocol research estimates
- GENIUS Act; Next steps for GENIUS — US Senate; Brookings
- Proposed Regulatory Regime for Sterling-Denominated Systemic Stablecoins — Bank of England
- Updated Guidance for VAs and VASPs — FATF