Dollar-backed stablecoins can push local currencies lower, Bank of Korea study finds
A Bank of Korea study suggests that the trading of dollar-backed stablecoins can lead to the depreciation of local currencies. The research highlights how market makers' activities in crypto markets can influence traditional foreign exchange rates.
Why it matters
It provides evidence of the growing systemic link between decentralized digital assets and national monetary stability.
The study by researchers Jihyun Kim and Sangheum Cho examined what happened when Binance introduced direct trading between currencies, such as the Brazilian real and dollar-pegged stablecoins like USDT and USDC.
The listings let investors buy stablecoins with local currency while professional market makers supplied the tokens. Those market makers then have an incentive to sell the local currency and buy dollars in the FX market to balance their positions.
That led to a route through which demand for stablecoins effectively affected exchange rates.
The researchers found local stablecoin premiums fell by about 0.33 to 0.38 percentage points after Binance introduced fiat-stablecoin pairs. Stablecoins also tended to flow from Binance to local exchanges when local prices rose above Binance’s.
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