Dollar-Backed Stablecoins Can Push Local Currencies Lower, Bank of Korea Study Finds

Dollar-pegged stablecoins can weaken local currencies. That is the finding from the Bank of Korea, which traced a direct line between crypto buying pressure and foreign exchange rates.

The mechanism works like this. Market makers rebalance stablecoin positions into actual dollars, and the adjustment lands on whatever fiat currency sits on the other end of the trade.

The central bank laid this out in a report published September 3, titled “BOK Issue Note: Links Between Dollar Stablecoins and Foreign Exchange Markets.” It documented what it called a measurable transmission channel. Binance began supporting direct trading between dollar stablecoins and the legal tender of specific countries, the euro and the Turkish lira among them. After that change, the premium those stablecoins carried above the dollar’s real value narrowed by 0.33 to 0.38 percentage points. The gap between exchange price and real-world dollar value closed. The local currency absorbed the hit.

Brazil is the clearest example. Brazilian buyers can purchase dollar stablecoins on Binance directly with the real. Demand turned into actual dollar purchases. The real-dollar exchange rate rose 0.12 percent. The real depreciated. For any country with a direct fiat on-ramp to dollar stablecoin pairs, the link is live.

Rising demand for dollar stablecoins, the bank wrote, strengthened the downward trend in those currencies against the dollar.

South Korea sits on the other side of that line. Korean investors cannot buy stablecoins on Binance with the won. More domestic buyers do not produce more dollar purchases. The market is mostly local retail traders swapping existing holdings. Demand surges get absorbed into stablecoin prices and never reach the exchange rate.

That insulation is not permanent. Korea’s crypto market is dominated by retail participants. Corporations and foreign investors face limits. Open the market wider and price gaps between domestic and overseas stablecoins would narrow. But the link to foreign exchange could also strengthen. Currency weakness could follow.

“If the market structure changes, for instance through wider participation by corporations and foreign investors in domestic crypto exchanges, the link between the stablecoin market and the foreign exchange market could strengthen,” said Kim Ji-hyun, a manager on the international finance research team at the Bank of Korea’s International Department.

The findings matter beyond Seoul. Dollar-backed stablecoins dominate the global market. Central banks from Brasilia to Ankara have watched retail demand climb alongside local currency stress. The BOK note is among the first from a major central bank to trace an empirical path from exchange-level buying pressure to FX movement. Not theoretical. Empirical.

The report does not call for restrictions on dollar stablecoin trading. It documents a mechanism. Flags a risk tied to market structure. The bank’s researcher recommended that digital asset rule overhauls be pursued alongside internationalizing the won and improving the foreign exchange market’s structure. Stablecoin regulation, in this framing, is not a standalone crypto question. It is one piece of broader monetary architecture. Payment-rail design and currency resilience arrive at the same desk.

Korea’s insulation holds only so long as its domestic crypto market stays walled off from the institutions and capital flows that would bridge the gap. The bank emphasized that point.

Original reporting by Han Dong-hoon for Seoul Economic Daily. Quotes and figures are drawn from the English-language edition of the outlet’s coverage; the article notes that it was translated from Korean with assistance from artificial intelligence and that quoted material may not reflect exact original wording.