From a local-currency point of view, if you have, let's say, a bank in some country that has extended loans in its local currency based on deposits in that local currency and something happens -- let's say it's an election -- and that country's depositors say, "Oh, I'm getting into stablecoins right now, bye!" That's a financial stability problem from the point of view of that currency's banking sector.

It potentially amplifies those strong dollar cycles, which can have really terrible consequences. Almost by design, this kind of thing will happen exactly in those countries that are weaker; that are more exposed to dollar strength.

If you create a vehicle for people in those countries to pile into dollars and weaken the domestic banking system, you're just expanding the reach of that U.S.-centric global financial cycle.

Thanks, Karthik.

Write to Matt Peterson at matt.peterson@dowjones.com

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January 02, 2025 02:30 ET (07:30 GMT)

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