Stablecoins and Currency Substitution: Identify the Mechanism Before Measuring the Effect
Stablecoin transaction volume alone cannot establish currency substitution. Policymakers and financial decision makers need to distinguish transfer activity, balances retained and changes in the unit of account. These mechanisms have different implications.
A useful country analysis starts with an explicit hypothesis and evidence capable of challenging it. It does not turn a single activity metric into a broad macroeconomic conclusion.
Separate technology from currency denomination
Payment technology and reference currency are separate dimensions. A dollar-linked token may be bought and sold quickly or held as savings. The foreign-exchange and banking channels differ between those cases.
The Bank of Japan’s 16 May 2026 discussion of the singleness of money offers another perspective: digital forms should also be examined alongside bank deposits and central bank money. Digitalisation should not automatically be described as dollarisation.
Set out three testable hypotheses
Hypothesis | Evidence sought | Evidence weakening the interpretation |
|---|---|---|
Transfer instrument | Closely matched inflows and outflows, limited retained balances | Persistent accumulation after payments |
Store of value | Retained balances and documented holder choices | Brief holdings used only to fund transactions |
Unit of account | Prices, wages or contracts actually denominated in the reference | Token use without changing contractual pricing |
State the coverage of the data: observed platforms, identifiable holders, periods and treatment of internal transfers. A wallet is not automatically a resident. An address-to-address transfer is not necessarily an economic payment.
Do not assume one-for-one displacement of bank deposits
BIS Working Paper 1370, published in July 2026, examines deposit dollarisation and stablecoin flows. Its analysis finds little evidence of substitution between those instruments. The paper expresses its authors’ views. This cautions against assuming that every token purchase withdraws an equivalent amount from local banks.
Funding matters. A buyer may use a domestic deposit, offshore income or an existing platform balance. Banking and exchange-market effects require evidence of the actual route, with data limitations stated.
Worked example: a flow index rises from 100 to 160
A fictional observatory records a monthly index rising from 100 to 160. That shows growth in observed activity. It does not establish a 60% increase in national dollar savings.
To test substitution, the team adds retained balances, funding sources and contract denomination. If those inputs are missing, the conclusion remains increased activity with unresolved end use. It should not become an estimate of lost monetary sovereignty.
Map the transmission channels: a Nigerian application
The IMF documents Nigerian cross-border payment use and demand associated with earlier FX pressures, while highlighting measurement gaps. That is a basis for investigation, not a direct measure of residents’ currency substitution. Gross on-chain volume and address counts are insufficient.
Channel | Mechanism to test | Useful evidence and limitation |
|---|---|---|
Payment transit | Short-lived acquisition followed by invoice settlement | Holding time and exit; high turnover may coexist with a small balance |
Store of value | Persistent dollar-token holdings instead of local-currency balances | Verified resident holdings; an address does not establish residence |
Unit of account | Dollar-denominated prices, contracts or wages | Contract samples and frequency; cannot be inferred from a transfer alone |
Bank funding and FX | Changes in deposit location or net demand for foreign currency | Payment counterparty, receiving bank, net flows and residence; often incomplete |
Entirely hypothetical ledger example: A holds 100 local-currency units and B zero at the same bank. A pays B 40 for tokens B already owns. Deposits become A = 60 and B = 40; the bank total remains 100. A has acquired dollar exposure without mechanically destroying that bank’s deposits. An offshore seller or an interbank payment requires a different analysis; the example is not a country-level finding.
BIS Working Paper 1370 examines deposit dollarisation and stablecoin flows; it does not supply transaction-level causality for Nigeria. A country note should separate observation, plausible transmission and missing evidence. BECTRA’s institutional deliverable is an indicator matrix with definitions, sources, frequency and events that would change the diagnosis. For companies, the same distinction separates a temporary payment need from a decision to retain tokenised dollars.
BECTRA’s framework for decision makers
BECTRA can prepare country notes linking hypothesis, mechanism, indicator, limitations and revision signals. Businesses obtain context for treasury decisions; institutions obtain a basis for discussing risks and monitoring options.
A strong note also states what it cannot conclude. Statistical association is not local causal proof. Currency-substitution scenarios remain conditional until behaviour and financial channels are adequately documented.
Further reading
Sources
Sources consulted on 17 October 2026. Decision tables and examples are BECTRA analytical constructions; fictional amounts are not market observations.
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