The Dollarization Myth
Holding a foreign-currency stablecoin and using one briefly in a fiat-to-fiat payment are different activities. Each still needs a route-specific risk and legal review.
By Anton Titov, Founder · Plexo Institute
A framework for separating stablecoin holding from payment transit without treating either category as automatically safe, prohibited, or macroeconomically neutral.
A stablecoin held as savings and a stablecoin used briefly within a payment route are different activities. Neither label decides the risk or the legal answer on its own.
Reading Guide
Separate the holder, duration, conversion path, liquidity, controls and legal perimeter before drawing a policy conclusion.
Dollarization is sometimes discussed as if every stablecoin transfer has the same consequence. It does not. A household holding a foreign-currency stablecoin, a business using one as a short settlement leg, and an operator maintaining working liquidity can create different exposures. The distinction is useful only if it leads to a more complete risk review rather than a claim that one category is automatically harmless.
| Activity | Question to answer | What must be checked |
|---|---|---|
Holding | Who retains the claim and for how long? | Purpose, duration, custody, redemption access, currency exposure, funding and applicable rules. |
Payment transit | Who bears risk while value is converted and moved? | On/off-ramp, settlement asset, route liquidity, FX, compliance controls, finality and recovery arrangements. |
Operational liquidity | Which institution holds working balances and why? | Balance limits, governance, concentration, counterparty exposure and contingency arrangements. |
Holding and transit are not interchangeable
The economic exposure depends on the actual arrangement, not on the word “stablecoin”.
The first task is to identify whether the arrangement creates a continuing claim on foreign currency, a short settlement exposure, or working liquidity for an operator. The questions that follow are different in each case.
Longer-duration foreign-currency holdings can be relevant to currency substitution, deposit funding, consumer protection and capital-flow policy. The size of those effects cannot be inferred from the existence of a token alone. It requires data on who holds it, through which providers, under what redemption terms and in which legal and macroeconomic setting.
A fiat-to-fiat payment can use a stablecoin only between regulated or contracted intermediaries. That may limit end-user token exposure, but it does not remove issuer, custody, liquidity, FX, sanctions, data, finality or legal risk. Each payment route needs an explicit allocation of those risks and a fall-back path.
An operator may keep working balances, a conversion may be delayed, or a recipient may retain an asset after payment. These facts can turn a supposed transit route into a holding exposure. The relevant test is the observed operating arrangement, not the intended marketing description.
What a responsible policy analysis asks
A policy analysis should not begin with “ban or allow”. It should first define the activity. Is the proposal issuance, custody, exchange, payment execution, redemption, technology provision or a combination? Who is the issuer, who controls the wallet or account, where are the customers, and which authority governs each leg?
Name the token, issuer, chain form and redemption path.
Map the fiat entry, conversion, settlement and fiat exit separately.
Identify who bears liquidity, FX, fraud, sanctions, finality and recovery risk.
Read the current legal text and regulator notice for that specific activity.
Keep country adoption and macroeconomic claims separate from legal-status conclusions.
What the legal sources can and cannot establish
MiCA, the US GENIUS Act, FATF guidance and national proposals address different entities, products and implementation stages. An enacted law, a proposal, a consultation and an individual licence are different facts. None alone establishes that a named cross-border route is authorised.
Adoption, volume, exchange pricing and media reports can help form a question about a market. They cannot prove the cause of a policy choice, the legality of a product, or the effect of a restriction. Those claims need their own dated methodology and primary sources.
A compliant operator may create auditable records for the activity it performs. The usefulness of those records depends on the regime, reporting duties, data quality, legal access and coverage. It should not be described as complete visibility of a country’s foreign-currency flows.
Counter-Arguments
An activity label is a starting point for analysis, not a substitute for route-level evidence.
A short stablecoin transit leg can reduce some customer-facing exposure in a particular arrangement, but it does not remove issuer, custody, liquidity, FX, compliance, finality or legal risk. Conversely, the existence of a foreign-currency holding does not by itself quantify currency substitution or establish a policy effect. Each conclusion needs evidence for the named activity, participants, duration and jurisdiction.
Limitations
This is a framework for asking better questions, not a claim that payment transit is economically neutral or that holding necessarily causes dollarization. It does not rank jurisdictions, forecast regulation, measure a country’s stablecoin activity or provide legal advice. A claim about a named country or corridor needs a dated regulator packet and route-specific evidence.
About the Author
About This Perspective
Scope and method.
Plexo Institute analyses stablecoin infrastructure from an operator perspective. This page separates holding, payment transit and operational liquidity so that a reader can decide which evidence is needed next. It is not investment, tax, legal or monetary-policy advice.
Relevant Reading
The Fiat Sandwich — a route-level framework for fiat-to-fiat settlement with a stablecoin transit leg.
Stablecoin Reserves & Attestations — how to separate reserve composition, custody, verification and redemption.
What Is a Clearing Network? — the legal and operational evidence a shared arrangement needs.
References
5 references- Updated Guidance for a Risk-Based Approach to Virtual Assets and VASPs — FATF
- Regulation (EU) 2023/1114 on markets in crypto-assets — European Union
- GENIUS Act, Public Law 119-27 — US Congress
- Proposed regulatory regime for sterling-denominated systemic stablecoins — Bank of England
- Nigeria’s eNaira, One Year After — International Monetary Fund