Crypto in the Global South: Stability, Sovereignty, and Speculation

Context:

Gita Gopinath, the First Deputy Managing Director of the International Monetary Fund (IMF), has raised concerns over the accelerated adoption of cryptocurrencies—especially stablecoins—in developing countries. Her remarks come amidst growing global political interest in crypto, including initiatives by the Trump administration.

What Are Stablecoins?

• Stablecoins are a type of cryptocurrency pegged to stable assets like fiat currencies (e.g., US Dollar) or commodities (e.g., gold).

• Their value remains relatively stable, unlike highly volatile assets like Bitcoin.

• Their stability makes them appealing for use in transactions, especially in developing economies with unstable currencies.

Gita Gopinath’s Concerns

• Rapid crypto adoption, especially of stablecoins, poses risks to monetary sovereignty in emerging markets.

• Key risks include:

  • Currency substitution – replacement of national currencies by stablecoins.

  • Disintermediation of financial institutions – bypassing banks and weakening domestic financial systems.

Surge in Crypto Under Trump’s Second Term

• President Donald Trump, who previously criticized crypto, has now embraced it as a strategic tool.

• Bitcoin recently crossed $110,000, and as of June 6, was trading at $104,512.82, after bipartisan Senate support for the GENIUS Act Bill.

GENIUS Act Bill – A Game-Changer

• Aims to regulate and expand the stablecoin industry in the U.S.

• Key Provisions:

  • Mandatory compliance with anti-money laundering and anti-terrorism laws.

  • Stablecoins must be 100% backed by fiat or highly liquid assets.

  • Issuers must maintain separate reserve accounts.

• Industry analysts estimate the Act could grow the stablecoin market to $2 trillion if passed.

Developing Nations and Crypto Adoption

• Pakistan has signed a partnership with World Liberty Financial Inc. (WLFI)—a Trump-affiliated firm—via the Pakistan Crypto Council.

• Objectives include:

  • Promoting blockchain technology

  • Facilitating remittances and trade

  • Using crypto for monetizing national assets like rare earth minerals

  • Positioning Pakistan as a regional crypto hub

El Salvador’s Experiment with Bitcoin

• In 2021, El Salvador became the first country to adopt Bitcoin as legal tender.

• However, its real-world usage remains minimal, showing limited success in driving daily economic transactions.

Crypto Risks for Emerging Economies

• The IMF and global economists warn that:

  • Cryptoisation—a shift from domestic to digital currencies—threatens financial stability.

  • It can reduce trust in national currencies, especially in countries with high inflation and weak banking systems.

UNCTAD's Findings on Cryptoisation

• A UNCTAD study highlights how macroeconomic instability and youth-driven digital adoption are increasing crypto's role in GDP.

• Stablecoins, due to their foreign asset backing, may undermine domestic currency demand.

Risk of Bank Run-Like Situations

• If the asset backing of a stablecoin is questioned:

  • Investors may rapidly withdraw funds, creating a bank run-like crisis.

  • This could result in systemic shocks for both crypto markets and national financial systems.

Conclusion

The accelerated use of stablecoins and cryptocurrencies in developing countries has sparked growing international scrutiny. While they offer innovation and financial inclusion, the risks of financial instability, currency substitution, and regulatory gaps remain significant. Global institutions like the IMF are calling for cautious and coordinated regulation to safeguard monetary systems—especially in vulnerable emerging economies.