Analysts suggest that the connection between the dollar stablecoin market and traditional foreign exchange markets could be strengthened through global exchanges. They warn that if direct trading between certain fiat currencies and dollar stablecoins becomes possible on these platforms, shocks in stablecoin demand could impact the value of those currencies.
On September 3, the Bank of Korea's International Finance Research Team released a report titled 'BOK Issue Note: The Link Between Dollar Stablecoins and the Foreign Exchange Market, Focusing on the Role of Global Exchanges.' The report analyzed data from 2019 to 2025 for 12 currencies, including the euro, Turkish lira, and South African rand.
According to the report, if trading between specific fiat currencies and the dollar stablecoin (USDT) becomes available on the global exchange Binance, liquidity providers, market makers, and hedge funds could adjust their fiat currency positions in the foreign exchange market based on developments in the stablecoin market, thereby linking the two markets.
Since Binance began supporting trading, the integration between the price of dollar stablecoins and spot exchange rates has increased. The premium on dollar stablecoins has significantly decreased by about 0.33 to 0.38 percentage points.
Jo Sang-heum, head of the Bank of Korea's International Finance Research Team, stated, "The reduction in premium does not necessarily indicate stability in the foreign exchange market. It is more accurate to interpret it as a low degree of shock transmission from the cryptocurrency market to the foreign exchange market."
Notably, the extent to which shocks from the stablecoin market are transmitted to the foreign exchange market has increased since trading support began. A rise in demand for dollar stablecoins, leading to an increase in premiums, has resulted in a depreciation of the local currency and a rise in the dollar exchange rate.
This suggests that increased demand for stablecoins could lead to local currency sell-offs and dollar purchases in the foreign exchange market, potentially weakening the local currency.
Conversely, if trading for a particular currency is not supported on Binance, it only raises the stablecoin premium while limiting its impact on exchange rates. The Bank of Korea views the availability of trading on global exchanges as a key pathway linking the stablecoin market and the foreign exchange market.
The Bank of Korea anticipates that as domestic cryptocurrency exchanges expand participation from corporations and foreign entities, the linkage between the stablecoin market and the foreign exchange market may strengthen.
However, they believe that the internationalization of the won and improvements in the foreign exchange market structure could serve as buffers against such shocks. An expanded base of market participants and increased liquidity in the foreign exchange market could mitigate the impact of shocks originating from the stablecoin market.
The Bank of Korea recommends that future reforms in digital asset regulations, the internationalization of the won, and improvements in the foreign exchange market structure be approached as interconnected tasks. Kwon Yong-o, head of the International Finance Research Team, noted, "While the current premium may act as a buffer to prevent significant fluctuations in exchange rates during major shocks in the cryptocurrency market, the emergence of pathways linking to the foreign exchange market could increase the likelihood of shocks affecting exchange rates. Therefore, institutional improvements to enhance the scale and depth of the foreign exchange market should be pursued concurrently."
* This article has been translated by AI.
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