Stablecoin Demand Can Weaken Local Currencies, BOK Study Finds
Dollar-backed stablecoins may be creating a new transmission channel between crypto demand and traditional foreign exchange markets.
Summary:
- Direct fiat-to-stablecoin markets strengthen the connection between crypto demand and FX rates.
- Binance listings reduced local stablecoin premiums by roughly 0.33 to 0.38 percentage points.
- Stronger stablecoin buying pressure was associated with depreciation in currencies with direct trading pairs.
- South Korea has not shown the same FX effect because the won lacks a comparable direct Binance stablecoin market.
A Bank of Korea study published September 3 found that when global exchanges allow investors to buy USDT or USDC directly with local currency, market makers can transmit that demand into the FX market as they rebalance their positions. In Brazil, the researchers linked a crypto-demand shock to a 0.118% depreciation of the real, showing how activity that begins on a crypto exchange can reach a national currency.
How a USDT Purchase Can Reach the FX Market
The mechanism identified by Bank of Korea researchers Jihyun Kim and Sangheum Cho starts with something relatively simple: an investor using local currency to buy a dollar-backed stablecoin.
Suppose a Brazilian investor buys USDT with reais through a global exchange. A professional liquidity provider can take the other side, supplying USDT and receiving reais.
That leaves the intermediary holding a position in the local currency. Because global market makers can access both crypto and conventional FX markets, they can rebalance by selling those reais and acquiring dollars.
Crypto demand has now produced an actual FX transaction.
The BOK describes this as shock transmission. Stablecoin demand no longer affects only the price or premium of USDT in a local crypto market. Under the right market structure, part of the shock can pass into the country’s exchange rate.
Investor wants USDT or USDC
Stablecoin bought directly with fiat
Local currency is sold against USD
The study does not say every stablecoin purchase automatically weakens a currency. Its finding depends on the market structure, particularly whether intermediaries can connect the stablecoin trade with conventional FX markets.
Binance Listings Gave Researchers a Natural Experiment
Rather than simply comparing stablecoin adoption with currency performance, the researchers studied what happened when Binance introduced direct trading between specific fiat currencies and dollar stablecoins.
The dataset covered 12 currencies with sufficient cross-exchange information, with Binance pairing events occurring between 2019 and 2025.
Before a direct pair exists, investors may need to move through local exchanges or other intermediaries. Prices can diverge from the underlying dollar exchange rate, producing a local stablecoin premium.
Once Binance introduced direct fiat-stablecoin trading, that premium fell by approximately 0.33 to 0.38 percentage points, according to the BOK. Stablecoins also flowed from Binance toward local exchanges when the local premium exceeded Binance’s price.
That is the first channel identified by the researchers: price integration.
The second is more consequential for central banks. Before direct trading was available, higher stablecoin premiums had limited impact on the corresponding dollar exchange rate. After the pair was introduced, higher premiums became significantly associated with depreciation of the local currency.
Net buyer-initiated stablecoin order flow showed a similar relationship.
Brazil Shows the FX Effect in Numbers
Brazil provided one of the clearest examples.
The researchers used Google searches for Bitcoin as an instrument for shifts in crypto investment demand. A one-standard-deviation increase in weekly Bitcoin search interest was associated with a 0.109 percentage-point increase in Brazil’s stablecoin premium.
More importantly for the FX market, the same shock was associated with approximately a 0.118% depreciation of the Brazilian real against the dollar.
READ MORE: Wyoming Links Chainlink to State-Issued Stablecoin Reserves
The number is small in isolation. Its significance lies in the transmission mechanism.
Crypto demand is normally treated as a financial-market event affecting Bitcoin, stablecoins or exchange liquidity. The BOK evidence indicates that once stablecoin markets are sufficiently integrated with global intermediaries, part of that demand can become a conventional capital flow affecting the currency itself.
That gives central banks another reason to watch stablecoin adoption beyond questions of payments and crypto regulation.
South Korea Shows What Happens Without the Link
The study’s comparison with South Korea helps isolate the role played by market structure.
There is currently no comparable direct Korean won-to-dollar-stablecoin pair on Binance. As a result, increased stablecoin buying pressure in Korea was mainly reflected in a higher local stablecoin premium rather than a statistically significant change in the won-dollar exchange rate.
In other words, demand exists, but the transmission channel into the global FX market is weaker.
That matters because Korea is already a substantial stablecoin market. Chainalysis data from 2025, reported that won purchases of stablecoins reached roughly $64 billion in the 12 months through June 2025, making South Korea the largest local-currency stablecoin market in Asia-Pacific over that period.
The BOK expects the structure to evolve as Korea opens more of its digital-asset market to corporations and foreign investors.
Stablecoins Are Starting to Look Like a Capital-Flow Question
Dollar-backed stablecoins are often discussed as payment instruments or digital substitutes for bank dollars. The BOK research adds another dimension: in markets with global intermediaries, they can behave more like a channel for non-traditional capital flows.
That has implications for countries where residents use USDT and USDC partly as protection against inflation, capital restrictions or depreciation of the domestic currency. Easier access can improve pricing and liquidity, but the same integration can make crypto demand more capable of transmitting pressure into the FX market.
For Korea, the researchers do not recommend isolating the domestic crypto market to prevent that effect. Instead, they argue that digital-asset regulation should develop alongside greater internationalization of the won and deeper FX-market liquidity, giving the currency market more capacity to absorb shocks as crypto and traditional finance become more closely connected.
That policy question will become more relevant if corporate and foreign participation expands. Korea currently offers an example of strong stablecoin demand with relatively weak FX transmission. The BOK’s evidence suggests that the balance can change once global liquidity providers gain a direct bridge between the two markets.
The information presented in this article is intended for informational purposes only and should not be interpreted as financial, investment, or trading advice. Coinspress.com does not promote or advocate for any particular investment strategy, asset, or cryptocurrency project. Cryptocurrency markets are highly volatile and unpredictable – always perform your own research and seek guidance from a qualified financial professional before making any investment decisions.
Alexander Stefanov
Reporter at CoinsPress
Alex is Editor-in-Chief of Coinspress and co-founder of Millennial Media Group, with nearly a decade of experience covering financial markets - crypto first, then everything else. It started in 2016 with Bitcoin. Like most people at the time, he didn't fully understand it - so he kept digging. Blockchain, tokenomics, the projects, the cycles. That curiosity never stopped, and eventually pulled him into traditional markets too: equities, commodities, macro. Not because he left crypto behind, but because you can't properly understand one without the other. What drives him is straightforward: he wants to know why something is happening, not just that it's happening. Most market coverage stops at the headline - price up, price down, here's a chart. Alex finds that kind of reporting actively unhelpful. If you walk away from an article without understanding the mechanism behind the move, what did you actually learn? He holds a degree in Tourism from New Bulgarian University - not the most obvious path into financial markets, but markets have a way of pulling in people who are simply too curious to stay out. He has authored over 200 in-depth analyses and more than 10,000 articles across crypto and traditional finance. He still thinks every day in markets teaches him something new. That's probably why he hasn't stopped.
