Moody's: Stablecoins lead the "cryptonization," the crypto world aims to seize the "monetary sovereignty" of emerging markets

Rating agency Moody's issued a warning that the wave of "cryptification" driven by stablecoins poses an increasingly severe challenge to monetary sovereignty and financial stability in emerging markets.

Recently, Moody's pointed out in its latest report that as the adoption rate of cryptocurrencies such as stablecoins accelerates globally, emerging markets face the risk of weakened monetary sovereignty. In this trend of "cryptification," stablecoins pegged to fiat currencies like the US dollar are widely used, thereby undermining central banks' ability to control interest rates and exchange rates.

The report clearly states that if individuals shift their savings from domestic bank deposits to stablecoins or crypto wallets, the banking system may face the risk of "deposit outflows." Moody's noted that this capital outflow not only affects the liquidity of banks but also poses a potential threat to overall financial stability.

Data shows that by 2024, the number of global digital asset owners has reached approximately 562 million, a 33% increase from the previous year. Moody's emphasized that while the proliferation of crypto assets in developed economies is largely driven by clear regulations and improved investment channels, in emerging markets such as Latin America, Southeast Asia, and Africa, the growth rate is the fastest, primarily driven by demand for remittances, mobile payments, and inflation hedging.

Escalating "Cryptification" Risks

Moody's believes that the core risk of "cryptification" lies in its erosion of a country's monetary policy independence and the stability of the financial system.

The report states that when a significant amount of economic activity is conducted through stablecoins, the central bank's ability to manage the economy by adjusting interest rates will be weakened. Additionally, if US dollar stablecoins become the mainstream medium of exchange, it will directly impact the stability of the domestic currency's exchange rate.

Furthermore, Moody's warns that stablecoins themselves also carry systemic risks.

The report points out that although stablecoins are considered relatively safe, their rapid growth has introduced systemic vulnerabilities: insufficient regulation could trigger a run on reserves, and if a de-pegging occurs, it may force governments to take costly rescue measures.

Imbalanced Growth and Regulatory Gaps

The proliferation of global crypto assets shows significant regional imbalances, while regulatory lag exacerbates the risks faced by emerging markets.

Moody's emphasized in the report that the current regulatory landscape is extremely fragmented. Data shows that globally, less than one-third of countries have implemented comprehensive digital asset regulations, leaving many economies directly exposed to market volatility and systemic shocks.

This regulatory gap contrasts sharply with the differences in growth patterns. The adoption of crypto in developed markets is more focused on investment, while people in emerging markets are driven more by practical needs, such as cross-border remittances and hedging against inflation risks of their domestic currencies.

Moody's believes that this divergence not only showcases the potential of digital assets in promoting inclusive finance but also highlights the accumulating risks of financial instability in the absence of adequate regulation