The stablecoin surge: Risks for the Global South?

Lately, stablecoins are everywhere you look in the global economy. We may finally be getting closer to the tantalizing 19-year-old vision laid out in the Bitcoin white paper — an alternative, global and digital payments ecosystem. Yet much of the discussion about stablecoins has focused on the benefits for users in the developed world, where new options would augment already sophisticated financial sectors and relatively stable fiat currencies. But for smaller developing economies, especially in much of Africa, the explosion of stablecoins may present larger challenges.

Stablecoins are privately issued digital money that sits in your digital wallet, readily accessible on your smartphone, just as cash sits in your physical wallet. Technologically, stablecoins derive from the cryptocurrency world more known for Bitcoin and Ether — but unlike Bitcoin, they are designed to be less volatile and more predictable, and thus more useful as digital money.

There has been rapid growth recently in a sub-class of stablecoins pegged in value to a deeply liquid fiat currency, such as the US dollar or another of the small handful of currencies that tend to dominate global cross-border activity. The issuer does not pay interest, but promises to redeem on-demand and retains backing collateral for coins on issue. By these means, coin holders have confidence that they can always get their dollar back, so the coin value stays at, or at least very close to, the value of the linked fiat currency. Let’s call this coin class “globalcoins.”

In principle, globalcoins are much more useful to holders than other stablecoins. If the underlying fiat currency is widely accepted, the potential pool of users and the range of transactions that might be performed using the coin are much greater. Moreover, a globalcoin can be used in the digital world more flexibly than, say, dollars in a bank account. They can be used from anywhere and at any time. They do not travel via government-controlled exchange and payment systems. They can be built into automated processing and self-executing financial transactions.

‘National currencies are a potent symbol of national self-determination and sovereignty, a key part of national identity.’

Despite this, until recently the main use of stablecoins appeared to be as an “on-ramp” and “off-ramp” between the crypto and legacy financial ecosystems — as well as increasingly as a convenient way for the digitally savvy to move money across borders quickly and cheaply, especially when they do not want to worry too much about government rules and restrictions.

So why the recent popularity surge in globalcoins? No doubt new regulatory frameworks in leading financial centers are a factor, most notably the European Union’s new MiCA regulation and the United States’ “GENIUS” Act. But the major recent driver is on the supply side. The world’s largest banks watched as fintechs like Circle and Tether generated impressive returns by issuing stablecoins for fiat, investing the fiat and taking the investment income. It’s a low-risk, high-return business. Now, global banks want in. Since September 2025, three different consortia of global tier-one banks in Europe, Japan and the US have all announced plans for joint issuance of stablecoins. Stablecoin activity is already surging, with more than $1 trillion worth of activity in each of the last two months. Globalcoins appear to be poised to go mainstream.

Social media and stablecoins: An obvious match

Global banks are uniquely positioned to integrate stablecoin options into corporate and business payments. This evolution is already under way, especially for cross-border services. But for stablecoins to really take off, widespread retail access and use is needed as well. This is the missing piece of the puzzle. But it may not be missing for long: We are already seeing announcements from retail platforms and fintechs like Paypal and Google about developing their own stablecoins. To cut to the chase, there are good grounds to believe that globalcoins and social media are a match made in heaven.

Something like this has been tried once before, although the results were disappointing. In 2019, Facebook (now Meta) announced “Libra,” a new global cryptocurrency integrated into multiple social media platforms such as Meta-owned Facebook, Instagram, Messenger and WhatsApp. Libra was aimed specifically at millions of users, especially in developing economies, who are underbanked. From Facebook’s perspective, having a widely used in-house currency was an extremely attractive prospect, capable of greatly enhancing the “stickiness” of the platform for users.

Originally, Libra was a unique new digital asset, like Bitcoin, but integrated with social media. It went through several iterations in an effort to win regulatory and policy support around the world, including proposals to peg its value to national currencies, which would have made it very stablecoin-like. But central banks and national treasuries reacted negatively. This was partly driven by consumer protection concerns, but also by the desire to protect the monetary sovereignty of central banks. Facebook was kept busy responding to public inquiries and policy papers. Central banks, meanwhile, developed a sudden enthusiasm for the alternative nationally controlled digital tokens known as central bank digital currencies, or CBDCs. Ultimately, the whole Libra project was shelved — while interest in CBDCs has also since declined noticeably, at least outside the European Union. In the US, the GENIUS Act put to rest proposals for a Federal Reserve-controlled digital dollar, while paving the way for private US stablecoins.

In 2025, things now look very different than when Facebook launched Libra. Policymakers, at least in developed economies, have become a lot more stablecoin-positive. As long as a stablecoin is fiat-denominated, it is more likely to be seen as an extension of, rather than a competitor to, the national fiat currency. Consumer protection frameworks for stablecoins, meanwhile, have been created in many jurisdictions, clarifying arrangements for oversight. And the latest generation of coin issuers have typically been large, prudentially supervised financial institutions. Coins backed by such players appear more familiar and less risky.

If Meta or Google could persuade significant numbers of their billions of users to buy, sell, invest and save without leaving their platforms, then widespread use of regulator-approved globalcoins — the original dream of Libra — would be close to realization. We may well see alliances forming between consortia of global banks, who are well-positioned and incentivized to issue and manage the value of stablecoins, and social media platforms, who likely have a structural interest in promoting their use and distributing them.

It seems like a win-win-win: Consumers get convenience, the platforms get increased stickiness and banks get a low-risk return. What could possibly go wrong? Competition regulators may have new headaches working out how to rein in the market power of the online platforms, but this is by now a familiar challenge.

Worries in developing economies

The pros and cons of such an arrangement get murkier when we consider the potential impact in the so-called Global South: developing economies in Africa, Latin America and southern Asia.

If we suppose that social media, e-commerce and digital banking fintechs will increasingly focus on the issuance and usage of globalcoins integrated into their worldwide platforms, we can also see that the best market opportunities for these new offerings may actually lie in aspirational developing economies, where banking and payments infrastructure is underdeveloped. Although it remains early days, recent experience bears this out. The great bulk of stablecoins are US dollar-denominated, and there are net outflows from North America to the Global South which account — in some cases — for  materially relevant totals relative to GDP of the destination regions.

Estimated gross and net stablecoin flows by region

This suggests that in developing economies, we will see increasing use of globalcoins alongside local currency. This is potentially good for consumers who use global platforms: they have the opportunity to enjoy seamless, instant cross-border payments. A new world of finance becomes accessible to them. Consider, for example, foreign workers sending remittances home to their families. As the World Bank and others have pointed out, this could take high fees and substantial risks out of the system.

But there are also potential downsides for individuals, economies and societies. At the level of individual convenience, people will have to live in two currencies — local currency for “real-world” living, and a foreign globalcoin for social media, e-commerce and digital living. This is likely to add financial cost and risk, as anybody who has to keep bank accounts in two or more currencies will know. We can already see examples of these challenges in a few dollarized economies like Liberia, Panama, El Salvador and Zimbabwe.

At the economic level, it is much harder for the national central bank to set and maintain monetary policy if a significant proportion of the country’s economic activity does not occur in local currency. Dollarization — adoption of a foreign currency (the dollar) as a national currency — has been considered as an economic remedy in countries with chronic inflation and/or instability. It’s beyond the scope of this article to consider the macroeconomic pros and cons in detail, but it should be sufficient for now to say that dollarization can create financial stability in the short-term but is a drastic remedy not engaged lightly, with longer-term effects that are much less clear.

‘People will have to live in two currencies — local currency for ‘real-world’ living, and a foreign globalcoin for social media, e-commerce and digital living.’

But for emerging markets, a more immediate socio-economic challenge also arises: a new form of the digital divide. Originally, the digital divide arose from unequal access to digital infrastructure, such as mobile networks and the internet. Historically, this was a major challenge for developing economies, based around access to digital financial services. In the classic case, a minority of wealthier citizens has access to payment cards, bank accounts, insurance and credit, with a poorer majority living in cash and thus unable to access these essential tools for growing prosperity. The gap between rich and poor was entrenched.

Yet substantial progress has been made. In recent years, the rapid growth of mobile access and simultaneous access to mobile money — digital wallets offered by telcos or e-commerce platforms on mobile phones — has made remarkable inroads into the digital divide. Since 2011, the World Bank’s Findex has documented the impressive growth of access to financial services, and the role that mobile money, especially in Africa, has had in this success story. The key point to note is that mobile money generally exists in the cash currency of each country, and thus brings all citizens — rich or poor — together into a national financial ecosystem. It thus reduces the digital divide.

If globalcoins evolve as suggested here, this progress may be slowed or even reversed. For the minority of wealthy citizens in a developing economy, payments by mobile through platforms using in-house globalcoins could become the standard way to pay not just for e-commerce transactions but in the real world as well. From a platform’s perspective this would be all for the better — the platform becomes irreplaceable for wealthier citizens across multiple countries. The wealthy few in each country become part of a new globalcoin community, leaving the rest behind.

But this reincarnation of the digital divide would be bad news for the world’s poor.

It can be argued that there is also a related long-term social challenge. National currencies are a potent symbol of national self-determination and sovereignty, a key part of national identity. This is particularly true in post-colonial societies. For example, this year, Ghana — one of the success stories for financial inclusion through mobile money — has been celebrating 60 years of the cedi, its national currency. To mark the occasion, events have been taking place throughout the year, culminating in an international conference in November. The establishment of a national central bank and creation of the cedi embodied Ghanaian independence from colonial rule.

This picture recurs in many post-colonial African economies: the local currency is valued and heavily used locally, but not widely traded outside the country. The only exception may be South Africa, a major commercial anchor for the African continent and global trade flows.

A deepening digital divide would in this case not only leave the poor behind; it would also risk undermining the position and relevance of the national currency — and by extension, the national identity. National economic policymaking would increasingly be subject to support from online platforms who have captured the eyes and potentially the minds of citizens. The risk is that a cycle of dependence is established.

‘Dollarization can create financial stability in the short-term but is a drastic remedy not engaged lightly, with longer-term effects that are much less clear.’

As globalization pressures increase, all societies must strike a cultural balance between treasuring unique features, and assimilating things of value from elsewhere. The balance may be struck differently in different countries. Liberia, to Ghana’s west, has officially adopted the US dollar — the fiat currency, not the stablecoin — as a national currency alongside the Liberian dollar. No doubt this in part reflects Liberia’s unique historical ties with the United States.

But a globalcoin is not just another national currency. It is a commercial construct, operated as a for-profit venture. Surrendering economic independence to one or more global platforms and their integrated globalcoins seems a cultural risk few countries would voluntarily take.

Regulatory options, but no clear solution

In payments policy, the challenge for central banks is to bring the community together into a sound, fair, integrated payments ecosystem, thereby enabling and supporting national economic policy and, ultimately, broad prosperity. To the extent that globalcoins represent a threat to that objective, one response might be to ban — or at least disincentivize — them. Moves in this direction have been made in India and China.

Many smaller countries would hesitate to deny their citizens access to such potentially useful financial constructs, as long as the risks can be managed. Exactly how this might be done is still very unclear. It is too soon to say for sure, but the following possible policy responses might be explored:

• Accurately monitoring local globalcoin activity relative to activity in the national currency. This might sound easy, but few countries currently track — let alone publish — statistics on local stablecoin activity.
• Central bank-supported stablecoin “sandboxes” to encourage collaborative experimentation on design and regulation of stablecoins.
• Creating a comprehensive national digital payments infrastructure, providing every citizen with local currency in a digital wallet linked to the national instant payments infrastructure. This would create a more resilient national economy and tend to “crowd out” stablecoin-based alternatives.
• Launching a national digital token such as a CBDC, which we might think of as a “if you can’t beat them, join them” response. This would act as a sort of anti-globalcoin. The challenge here is to fashion the economic incentives for financial institutions and end users that will encourage adoption. Central banks are not typically set up to market competitive financial products against global banks and fintechs.
• Providing incentives for issuance and use of locally denominated stablecoins, a related alternative to explore. Again, if the right incentives can be developed, the community gets the benefit of globalcoins, but tied to the local currency.

From here, we are in uncharted territory. Multiple other regulatory responses to safeguard the local currency while allowing globalcoin access could be imagined as such options become more widespread and a priority for regulators to address. Some possibilities include requiring prices to be quoted in local currency, sponsoring real-time exchange rates, legally imposed limits on holdings and more. Careful modeling of the options would be required.

Globalcoins are shaping as the next frontier for smaller developing economies in managing the benefits and risks of globalization. Success entails taking maximum social benefit from a valuable new technology, while avoiding the economic traps of inequality and loss of economic independence. The future prosperity of their citizens may be at stake.