perspective

The Dollarization Myth

Most emerging market regulators are treating a settlement rail as a savings product.

By Anton Titov, Founder · Plexo Institute

Published 2026-05-17

Transit is not store of value. The policy mistake is blocking licensed B2B settlement while informal dollarization keeps growing.

Reader Brief

Transit is not store of value. One threatens monetary sovereignty. The other is settlement infrastructure.

Reading Guide

Four ideas to anchor the read.

The core mistake: regulators conflate transit with holding, blocking B2B while informal dollarization grows.

Oliver Wyman identifies three channels of sovereignty erosion: monetary policy traction, deposit substitution, and crisis acceleration. All three concentrate in holding behavior, not in short-duration payment transit. The fiat sandwich architecture - fiat in, stablecoin for minutes, fiat out - creates zero deposit substitution by design [1].

Where fear is justified: individual savings in USDT is dollarization, but bans failed.

When citizens hold stablecoins as savings, that is real dollarization. But banning the most traceable option does not reduce demand. It removes the regulator's ability to see the flows. Nigeria's peer-to-peer volume increased after the 2021 ban. India's Supreme Court struck down the RBI ban as disproportionate [2][12].

The better framework: Stage 1 transit, then Stage 2 limited holding.

Sequencing permits transit first - fiat endpoints, minutes-only exposure - then adds holding with balance caps, no yield, custodial-only custody, and aggregate reporting. ADGM, Singapore, Brazil, UAE, UK, and Chile each reached this conclusion through different legal pathways [6][7][8].

The counter-intuition: supervised transit gives central banks visibility they never had.

Most emerging market USD flows are invisible today: peer-to-peer desks, messaging groups, and informal settlement networks. Licensed stablecoin operators with Travel Rule compliance make volumes, corridors, and counterparties visible for the first time. Visibility is sovereignty [9].

The Core Mistake

Regulators are collapsing two fundamentally different economic behaviors into one policy category.

Regulators across emerging markets are collapsing two fundamentally different economic behaviors into one policy category. **Store of value** means citizens hold USDT for weeks or months as savings. **Transit** means a business sends USDT for minutes during a cross-border payment. One threatens monetary sovereignty. The other is settlement infrastructure. Treating them identically produces the worst outcome: formal B2B settlement stays blocked while informal peer-to-peer dollarization keeps growing.

Risk-split diagram showing stablecoin holding leading to monetary traction, deposit leakage, and crisis-exit risks while business transit keeps fiat endpoints and exposes corridor data. — The dollarization risk concentrates in holding behavior, not in short-duration business transit between fiat endpoints.

Behavior	What happens	Policy meaning
Store of value	Citizens hold stablecoins as savings	Competes with local currency. Weakens monetary policy. This is dollarization.
Transit	Businesses send stablecoins for minutes	Settlement rail. Fiat in, fiat out. No deposit substitution. This is not dollarization.

Oliver Wyman identifies three real channels of sovereignty erosion. All three concentrate in holding.

The Oliver Wyman framework maps three mechanisms through which stablecoins can weaken monetary sovereignty [1]. **1. Reduced monetary policy traction.** If households move savings into foreign-currency stablecoins, domestic interest rate tools lose grip. But B2B transit does not move savings. It moves payment value for minutes. **2. Bank deposit substitution.** Migration from deposits to stablecoin balances raises bank funding costs. But a payment that starts in local fiat and ends in local fiat does not drain deposits. The money leaves the banking system the moment the importer pays for goods, exactly as it would in a SWIFT transfer. **3. Crisis acceleration.** Stablecoins can enable capital flight at digital speed. This is a real risk for retail holding. It is not the same risk as B2B settlement with fiat endpoints. All three channels are real. All three concentrate in **holding behavior**, not in short-duration payment transit.

The fiat sandwich: stablecoin exists for minutes, neither side touches crypto.

The dominant architecture for cross-border stablecoin payments is the fiat sandwich: 1. Sender pays in **local currency**. 2. Licensed on-ramp converts to stablecoin. 3. Stablecoin transits on-chain to destination, usually in seconds. 4. Licensed off-ramp converts to **destination local currency**. 5. Recipient receives fiat. The end user on both sides works exclusively in local currency. The stablecoin exists only during transit. No citizen holds stablecoins. No store of value is created. A Nigerian importer paying a Chinese supplier can have naira converted to USDT, the USDT transit in under **10 minutes**, and the payout convert to yuan. Total time in stablecoins: minutes. This does not appear in M2 statistics. It does not compete with the naira as a store of value. It is a payment rail.

Where The Fear Is Justified

Individual savings in stablecoins is dollarization. It is real, but it is not the same as payment transit.

The dollarization concern is legitimate for one use case: **individual savings**. When freelancers, traders, and middle-class professionals convert income to USDT and hold it for weeks or months, that is deposit substitution. That is reducing the effectiveness of monetary policy. But this behavior is a symptom, not a cause. It appears wherever local currencies weaken sharply. The pattern is global, not regional.

~300% Argentine peso inflation during 2023-2024 devaluation cycles. Stablecoin adoption surged, and Chainalysis ranks Argentina second in Latin America on-chain volume [10].
4.3% Estimated Turkey GDP-equivalent USDT volume, despite a 2021 payment ban that remains in place [11].

Banning stablecoins does not fix currency crises. Nigeria, India, and Turkey all tried.

The pattern repeats across regions: - **Nigeria (2021):** banned crypto banking. Peer-to-peer volume increased. The central bank lost visibility. The ban was later reversed [2]. - **India (2018):** RBI banned financial institutions from servicing crypto entities. The Supreme Court struck down the ban in March 2020, calling it disproportionate [12]. - **Turkey (2021):** banned crypto payments. Holding and trading remained legal. USDT adoption continued to grow, reaching an estimated 4.3% of GDP [11]. In each case, the ban did not reduce demand. It changed the channel. Citizens who need dollar exposure during a currency crisis will find it through gold, physical dollars, real estate, or stablecoins. Banning the most traceable option does not solve the problem. It removes the regulator's ability to see the flows.

The spread tax in Africa: where licensed competition is absent, informality extracts the premium.

Every percentage point of spread is money extracted from African businesses because legal, efficient settlement does not exist [3]. These spreads are a tax on informality. They compress when licensed competition enters the corridor. | Country | USDT/USD spread | Driver | | --- | --- | --- | | Kenya (KES) | **1.5-3%** | High adoption, M-Pesa integration, multiple ramp providers | | Nigeria (NGN) | **3-8%** | Massive demand, fragmented supply, peer-to-peer dominated | | Ghana (GHS) | **4-7%** | Post-IMF reset, growing demand, mobile money primary rail | | Ethiopia (ETB) | **10-19%** | Extreme FX scarcity, capital controls, near-monopoly informal market |

98% Of eNaira Wallets Inactive

CBDCs can modernize domestic payments. They do not solve cross-border dollar settlement.

Nigeria launched the eNaira in October 2021 as the first CBDC in Africa. The explicit rationale included reducing dependence on foreign currency for payments. One year later, IMF analysis found that **98.5% of wallets were inactive in a typical week** [4]. CBDCs excel at domestic payment modernization. They do not address cross-border dollar settlement. A Nigerian importer paying a supplier in China does not need digital naira. The importer needs a corridor that can source and deliver external value.

CBDCs solve domestic, not cross-border. The smart play is both alongside each other.

The eNaira did not fail because the technology was bad. It failed to solve the problem that was driving stablecoin adoption: cross-border dollar access. Meanwhile, USDT volumes in Nigeria continued to grow through peer-to-peer and OTC desks, outside the eNaira ecosystem [2]. The market chose its own infrastructure. The productive framing is not CBDCs versus stablecoins: - **International leg:** USDC or USDT for cross-border settlement: speed and global liquidity. - **Domestic leg:** eNaira, cNGN, or local digital currency for last-mile distribution: monetary sovereignty. The stablecoin handles the international corridor. The local digital currency handles the last mile. Neither replaces the other.

The eNaira app was removed from Google Play. Users called it "E-dead."

By early 2026, the eNaira mobile app had been removed from Google Play. The USSD code (*997#) no longer functioned. The last post from the eNaira official social media accounts was in August 2023. On social media, Nigerians referred to it as "E-vanish" and "E-dead" [5]. Total transaction volume since launch: approximately NGN 29.3 billion across about 850,000 transactions. For a country of over 200 million people, this is negligible. The CBN acknowledged in August that the eNaira had failed to gain widespread acceptance. A partnership with Gluwa for technical upgrades in March 2024 and a September announcement to expand eNaira for government payments did not change the trajectory.

The Better Framework

The right response is sequencing: isolate transit first, then add holding with controls.

The right regulatory response is not to ban stablecoins and not to allow everything. It is **sequencing**: isolate transit first, then add holding with controls. Stage 1 eliminates dollarization risk by design. Stage 2 contains it through explicit mechanisms.

Two-stage policy path showing transit permission, an evidence threshold with use-case, completion, leakage, and compliance checks, limited holding rights, and a review loop. — A two-stage framework lets regulators permit transit first, then expand only when corridor evidence stays inside locally chosen policy bands.

Stage	What is permitted	Dollarization risk	Precedent
Stage 1: Transit	Cross-border B2B settlement and consumer remittance. Fiat in, fiat out. Stablecoin in transit within minutes.	Zero. No holding. No deposit substitution.	MAS/StraitsX, UAE PTSR, Chile
Stage 2: Limited holding	Licensed financial institutions may hold stablecoin balances in custodial accounts. Transitional balance caps. No yield. Fiat-only exit.	Contained. Caps, no yield, custodial-only, aggregate reporting.	ADGM FRT, UK BoE, GENIUS Act

Stage 2 containment: what limited holding actually looks like in practice.

Every control is transitional. The central bank retains authority to relax or tighten based on evidence, without new legislation. | Control | Mechanism | Precedent | | --- | --- | --- | | Transitional balance caps | Percentage-based caps on stablecoin holdings per licensed financial institution, calibrated to average monthly payment volume | UK BoE: proposed GBP 20K individual / GBP 10M institutional | | Custodial-only | Stablecoins held only inside licensed financial institution infrastructure. No self-custodied wallets. | ADGM FRT: activities limited to licensed entities | | No interest or yield | Custodial balances do not earn returns. Eliminates the better-savings-account incentive. | GENIUS Act: prohibition on yield for payment stablecoins [6] | | Aggregate reporting | Central bank receives real-time data on total holdings. Threshold triggers activate review. | BIS Project Aurora: cross-border supervisory data sharing [9] |

Six jurisdictions already proved this works. None invented a new regime.

Six jurisdictions independently reached the same regulatory conclusion through different legal pathways: 1. **ADGM (Abu Dhabi):** Expanded the Financial Services Regulatory Authority existing Regulated Activities to include fiat-referenced tokens. Stablecoins slotted into the existing financial services framework. Licensed entities can issue, store, and transfer FRTs under the same supervisory regime as other payment instruments. 2. **Singapore (MAS):** Added digital payment token services to the Payment Services Act. Stablecoin issuers must maintain 1:1 reserves in cash or cash equivalents, audited monthly. MAS distinguishes payment tokens from investment tokens [8]. 3. **Brazil:** Central Bank classified stablecoins used in cross-border payments as FX instruments under existing foreign exchange regulation. No crypto-specific law required: the transaction is treated as a foreign exchange operation that happens to use a digital asset as the transfer mechanism. 4. **UAE (CBUAE):** Payment Token Services Regulation places stablecoin issuance and custody under central bank supervision. Dirham-denominated stablecoins require CBUAE licensing. Foreign stablecoins such as USDT and USDC can be used for cross-border transit under licensed operator oversight [7]. 5. **UK:** Bank of England stablecoin work proposes balance caps and treats systemic payment stablecoins as payment instruments, not simply as crypto assets. 6. **Chile:** Fintech legislation and central bank implementation work bring stablecoins into the payments perimeter. Licensed payment providers can use stablecoins for cross-border settlement under central bank reporting requirements. The common insight: stablecoins used for payments are payment instruments. They belong under existing central bank oversight frameworks, not under a new crypto-specific regime that must be designed from scratch [6][7][8].

The Counter-Intuition

A supervised pipe is easier to govern than an invisible one.

Properly regulated stablecoin transit can **strengthen** monetary sovereignty instead of weakening it. Not because stablecoins are harmless. Because a supervised pipe is easier to govern than an invisible one.

Right now, the majority of emerging market USD flows are invisible to central banks. They move through peer-to-peer desks, messaging groups, and informal settlement networks [2]. Central banks are making monetary policy decisions on data that is becoming progressively fictional. Licensed stablecoin operators with Travel Rule compliance make these flows **visible for the first time** [9]. Volumes, corridors, counterparties, settlement speed. The central bank gains data it never had.

Evidence And Sources

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