Preserving Monetary Sovereignty in Emerging Economies in the Age of Stablecoins

By: Bharath Chari
Management Board Member

Abstract

As digital finance grows across emerging economies, stablecoins have emerged as both an opportunity and a challenge. This note touches upon the implications of stablecoin-based savings and payment infrastructure in countries such as Ethiopia, Nigeria, Argentina, the Philippines, and Indonesia with a focus on monetary sovereignty, institutional trust, and equitable development. Drawing on examples from remittance corridors and local financial innovation, including Ethiopia’s use of blockchain for ETB settlement, we argue for a model of digital financial inclusion that reinforces, rather than bypasses, national currencies.

1. Introduction

Stablecoins, particularly those pegged to major foreign currencies, are rapidly gaining adoption in emerging markets. For citizens facing high inflation or volatile local currencies, these assets offer perceived safety and usability. However, their growing role in domestic economies raises significant concerns for central banks, governments, and development actors.

This note suggests a constructive framework for analyzing stablecoin adoption through thelens of public interest, institutional resilience, and long-term sovereignty. The objective is not to reject financial innovation but to ensure it complements and strengthens domestic financial systems.

2. Understanding the Appeal and the Risk

2.1 Why Stablecoins Are Attractive

• Store of value in inflationary contexts (e.g. Argentina, Nigeria)
• Ease of access via mobile apps and crypto wallets (e.g. the Philippines, Kenya)
• Growing use in cross-border remittances and trade (e.g. Ethiopia, Indonesia)

2.2 Why They Present Risks

• Weakening of national monetary policy tools
• Parallel financial systems beyond regulatory reach
• Long-term erosion of trust in local currency

3. The Principle of Currency Sovereignty

It is a fundamental position of this note that no currency issued by a foreign nation-state should supplant a local currency, unless explicitly adopted by public policy.

• Currency is a core instrument of sovereignty.
• Any large-scale adoption of external currencies, physical or digital, without policy authorization undermines national financial governance.
• Even when introduced via fintech solutions, foreign currency dominance can shift control over savings, trade, and investment flows.

4. Impact on Local Currency Systems

When citizens increasingly save and transact in foreign-denominated stablecoins:

• Domestic currency demand declines
• Financial institutions face disintermediation
• National debt and budgeting become harder to manage

Rather than merely restricting access, the solution lies in creating attractive local alternatives.

5. Case Study: Blockchain without Currency Replacement

The Xahau ETB remittance initiative in Ethiopia demonstrates how blockchain can facilitate global remittances while preserving domestic monetary structure. Key features:

• FX inflows converted to local currency
• Fully regulated on/off ramps
• Use of blockchain as settlement infrastructure, not a substitute for local money

This model offers a replicable blueprint for countries seeking to balance openness with sovereignty.

6. Principles for Designing Responsible Digital Finance Systems

1. Local Currency Anchoring: Use stable, regulated instruments in domestic denominations.
2. Export and Trade Alignment: Encourage global stablecoin use to support exporters, not domestic savings displacement.
3. Public-Private Collaboration: Involve central banks, telecoms, fintechs, and communities.
4. Inclusion by Design: Ensure rural populations and informal sectors can participate.
5. Regional Coordination: Explore multi-country frameworks for digital settlement and clearing.

7. Recommendations

To manage the risks and unlock the potential of stablecoin adoption:

• Define Strategic Use Cases: Identify contexts where stablecoins add public value (e.g. exports, trade financing).
• Develop Local Currency Tools: Create digital savings and payments infrastructure anchored in national currency.
• Build Literacy and Access: Support financial education and mobile infrastructure expansion.
• Ensure Transparent Oversight: Mandatory reporting, audited reserve backing, and compliance for all stablecoin-related activity.

8. Call to Action: Enabling Regulated Local Currency on Blockchain

We urge central banks and financial regulators in emerging economies to actively encourage their licensed financial institutions to issue the national currency on blockchain infrastructure.

• This issuance should remain fully custodial and regulated, aligned with national financial policy.
• Blockchain-based local currency instruments can power remittance flows, retail payments, cross-border trade, and savings mechanisms.
• These systems should adopt the principles of transparency, convertibility, KYC compliance, and domestic value retention.

The model exemplified by Ethiopia’s Xahau ETB remittance solution demonstrates the viability and benefits of such systems. When led by domestic institutions and used within regulated frameworks, blockchain offers a tool to amplify monetary sovereignty, not diminish it.

9. Conclusion

Ethiopia, Argentina, the Philippines, Nigeria, and Indonesia each illustrate the delicate balance between financial innovation and monetary stability. Stablecoins offer speed, transparency, and access but also risk bypassing hard-earned institutions. The way forward is neither resistance nor full adoption, but strategic integration guided by local values and long-term goals.

Monetary strength in the digital age means integration on our own terms. With our currency, our rules, and our people at the centre.