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The debate over stablecoins in the United States tends to revolve around a single question: Will they displace bank deposits? In many emerging markets, it is already too late to ask that question. Rather than merely competing for term deposits, stablecoins are rapidly evolving into parallel financial infrastructure for payments, payroll, corporate cash management, and cross-border settlement.
Following the passage of the GENIUS Act in July 2025, US policymakers were quick to declare the stablecoin question settled. That optimism may be premature. The law restricts reserves to cash, deposits, and short-term Treasuries and prohibits issuers from lending. But while it regulates issuers’ behavior, it says little about how stablecoins are used once they circulate within the broader financial system.
In emerging markets, that distinction is critical. Financial systems in these economies are often slower, more expensive, and more restrictive than those in developed markets, which helps explain their rapid shift toward stablecoins.
In the Philippines, for example, platforms like Toku and PDAX enable workers to receive salaries in stablecoins and convert them into pesos through local banks. And in Nigeria, e-commerce firms use stablecoins to accept international payments, bypass foreign-exchange restrictions, and avoid high banking fees. The International Monetary Fund has documented widespread adoption of stablecoins among Nigerian households and businesses.
This activity is no longer confined to isolated firms or individual users. Across Africa, licensed platforms operate as B2B payment and settlement networks using stablecoins.
Global incumbents are adapting as well. In 2025, Visa launched a pilot program that enables companies to fund cross-border payments with stablecoins rather than pre-depositing cash in local accounts. In partnership with Bridge, it has also introduced stablecoin-linked cards in Argentina, Mexico, Colombia, Ecuador, Peru, and Chile. Meanwhile, Brazilian developers are advancing real-denominated stablecoins for business and retail transactions.
These are not isolated crypto pilots but fully functioning, stablecoin-based systems integrated into routine economic activity. Operating outside traditional banking channels, they introduce two interconnected risks that the US-centric debate has largely overlooked.
The first is intermediation without adequate backing. Once stablecoins are embedded in operational cash flows – payroll, supplier payments, and commercial settlement – they begin to function as working capital against which credit can be extended.
Although widespread formal lending has not yet materialized, the balance-sheet adjustments that typically precede it are already evident. Increasingly, merchants carry stablecoin balances as working capital, delay converting them into local currency, and extend payment terms in the same unit of account.
When workers are paid in USDC and merchants accept USDT, accounts receivable and short-term credit arrangements follow. I call this the “Stablecoin Paradox”: to preserve stability under what effectively functions like a currency board, leverage and the creation of additional claims must remain tightly constrained. Yet once stablecoins are used in financial intermediation, whether in decentralized finance (DeFi) protocols or emerging forms of commercial credit, secondary claims inevitably proliferate.
The core issue is not what stablecoin issuers like Circle or Tether do with reserves, but what becomes of those liabilities after issuance. Each additional layer of intermediation generates claims on the same underlying reserves, potentially exceeding the 1:1 backing that stablecoins are required to maintain. Regulating issuers, as the GENIUS Act does, is insufficient.
Argentina’s 1991 Convertibility Plan, which fixed the peso to the US dollar, illustrates the risk. For over a decade, the central bank maintained 1:1 dollar reserves against base money, but commercial banks also created dollar-denominated broad money that far exceeded those reserves. Today’s efforts to regulate stablecoins risk repeating that pattern.
Documented cases of formal lending in stablecoins remain limited, suggesting that there is still time to contain the danger. Historically, however, financial intermediation does not begin with loans. It begins with balances, maturity mismatches, and deferred payments. Once working capital moves through stablecoin-based systems, the progression toward commercial credit becomes inevitable, even if it is not yet fully formalized.
A second, equally significant risk is the erosion of local-currency demand. Each transaction that migrates to stablecoins subtracts demand from domestic currency. This weakens central banks’ ability to influence borrowing costs, reduces government revenue, and heightens vulnerability to liquidity shocks, all without a lender of last resort for the parallel stablecoin system. Pricing goods directly in stablecoins rather than in local currency further increases exposure to exchange-rate fluctuations, thereby complicating inflation management.
The problem is less acute in the US, because stablecoins are effectively dollars competing with dollar deposits, and the Federal Reserve ultimately backstops dollar liquidity. It makes sense, then, that the American debate centers on what stablecoins mean for the future of banks.
Emerging markets with fragile currencies don’t have that luxury. A Filipino worker paid in USDC rather than pesos, or a Nigerian merchant accepting USDT instead of naira, represents monetary demand that central banks can neither measure nor regulate. Despite the shift toward the emerging stablecoin-based financial system, regulatory frameworks remain anchored to traditional banking institutions. The result is growing asymmetry. As these parallel payment systems scale, the effectiveness of conventional monetary and prudential tools is bound to diminish.
None of this implies that stablecoins should be banned. But the experience of emerging markets suggests that dollar-backed digital tokens are evolving rapidly from payment instruments into full-fledged financial infrastructure. While emerging markets have lived through dollarization crises before, the digital version may unfold faster and prove harder to detect precisely because it falls outside the perimeter of conventional regulation.
Declaring regulatory victory after clarifying issuance rules but ignoring the infrastructure forming around stablecoins, as the GENIUS Act does, is akin to regulating the printing press while disregarding what is published. As stablecoins shift financial flows beyond the scope of existing banking regulation, policymakers must expand the regulatory perimeter. After all, you can’t regulate what you can’t see.
