Shadow dollars need real balance sheets

Behind the stablecoin boom sits a familiar bottleneck: finite intermediation capacity. Aldasoro et al. show crypto dollar demand spilling into FX swaps, widening CIP and moving currencies.

In the last week, the BIS’ Inaki Aldasoro has produced not one, not two, but four papers (one of those is an update, but still!).

His hyper-prolific mind, with the help of equally tenacious co-authors Paula Beltran and Federico Grinberg, has now put out arguably the most masterful analysis yet of how stablecoins are impacting real-world funding markets and FX swap rates.

The paper takes a simple but underexplored idea seriously: that stablecoins are not just crypto plumbing, but a parallel dollar system interacting directly with global FX markets.

Using data on four USD-pegged stablecoins (USDT, USDC, DAI, BUSD) across 27 fiat currencies, the authors show that stablecoins effectively create a shadow FX market for dollars — one that is fragmented, frictional, and increasingly macro-relevant.

A key observation is that net stablecoin inflows are associated with a subsequent depreciation of the domestic currency in the traditional spot FX market. This, the authors say, “provides suggestive evidence that flows into stablecoins are not confined to the crypto ecosystem but can generate tangible pressures in traditional FX markets, potentially by increasing the net supply of the local currency in the spot market as users sell local currency to buy stablecoins.”