Cryptocurrencies in Emerging Markets: A Stablecoin Solution?

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Abstract

We rationalize cryptocurrency adoption in a small open economy model. We show that digital dollarization—where stablecoins pegged to the USD are used for transactions—can improve social welfare. In contrast, adoption of volatile cryptocurrencies, such as El Salvador’s 2021 decision to make Bitcoin legal tender, results in welfare losses. This finding is consistent with the observed low take-up of Bitcoin as legal tender. Welfare gains from digital dollarization rise with the severity of macroeconomic shocks, providing a rationale for the increasing use of stablecoins in emerging markets facing high inflation or instability.

Citation

Murakami, David, and Ganesh Viswanath‑Natraj. Cryptocurrencies in Emerging Markets: A Stablecoin Solution? Journal of International Money and Finance 156 (June 2025): 103344. DOI 10.1016/j.jimonfin.2025.103344 :contentReference[oaicite:1]{index=1}