Brazil’s central bank has raised concerns about the rapid rise in the use of US dollar-backed stablecoins for cross-border money transfers, warning that the development undermines capital controls and increases capital flow volatility.
On Tuesday, Deputy Governor Renato Gomes stated that the growing popularity of stablecoins—digital assets pegged to fiat currencies such as the US dollar—challenges established processes that govern currency conversion and international transfers.
Stablecoins take hold in cross-border transactions
Brazilian crypto adoption has surged in the last two to three years. Central bank estimates show that stablecoins account for nearly 90% of crypto-linked financial flows in the country.
They are appealing because they operate as a mediator between local currency and dollars, allowing them to transfer or receive money across borders at a quick speed and low cost, without the delays and fees of traditional banking.
Stablecoins are frequently used for remittances, Gomes said. To illustrate just how accessible these assets have really become, there are now even ATMs out in parts of the US that let a user directly withdraw cash from select stablecoin wallets.
Bypassing traditional financial oversight
The central bank also highlighted that stablecoins present a means of circumventing Brazil’s regulations on foreign exchange and cross-border movement of funds.
Speaking at a conference on monetary policy organised by think tank OMFIF in London, Gomes stressed that “these digital currencies enable people to bypass the formal routes through which reals are exchanged for dollars”.
“You can obtain the stablecoins, and when you come into the United States or somewhere else, you can redeem the stablecoin and basically have a dollar account without all the normal regulations”, he noted.
For remittance, this circumvention is then being “heavily used”, he added. Thus, capital flight is increasingly challenging to track and more erratic, given that virtually anyone with access to a stablecoin wallet can transfer cash in and out of the country with little resistance or supervision.
Regulatory blind spots and the need for global cooperation
The challenges go beyond domestic oversight. Gomes also mentioned that several stablecoin issuers active in Brazil’s currency space are based overseas.
The main issuer of real-backed stablecoins, for example, is based in Switzerland, far from the regulatory jurisdiction of Brazil’s central bank.
This lack of direct control over foreign-based issuers creates a significant void in financial regulation. As Gomes pointed out, tackling the threats posed by stablecoins will necessitate strong international cooperation.
Because these assets are decentralised and cross-border, national regulators cannot adequately minimise the risks on their own.
“We don’t have access to these issuers,” Gomes added, highlighting the critical need for international regulations to bring stablecoin activity under tighter scrutiny.
A new challenge for financial stability
Brazil’s experience is part of a larger worldwide trend in which central banks and regulators are wrestling with how to respond to the rapid expansion of digital money.
While stablecoins have evident benefits, particularly in boosting financial access and lowering remittance costs, they also create new vulnerabilities.
Unchecked, their extensive use might undermine the effectiveness of national capital restrictions, complicate monetary policy implementation, and expose economies to unexpected shifts in cross-border fund flows.
As Brazil faces these issues, its central bank is pushing its counterparts throughout the world to adopt coordinated solutions.
The story of Brazil may provide an early peek into the difficult trade-offs that central banks must navigate as they transition to a more digital, decentralised financial system.
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