Latin America's Stablecoin Dilemma: Dollar Reserves and Local Policy Challenges

Washington's stablecoin discussions focus on issuance criteria, collateral requirements, and audit standards. The Federal Reserve, U.S. central bank, and the Office of the Comptroller of the Currency (OCC) cannot simply accept that a token is worth one dollar; they must control who makes such promises.

Dollar-pegged tokens essentially function as representations of a country's currency. Latin America regulates this structurally differently, approaching currencies outside government control. For depositors in Buenos Aires, Bogotá, or Mexico City, whether their token is USDC, USDT, or another winner in the competition matters little—so long as the peg holds and custodians maintain solvency.

This asymmetry puts regional regulators at risk of making mistakes by mirroring Washington's issuer standards debate. The real issue differs entirely and is more complex: where dollar reserves backing stablecoins should be held.

Offshore dollar deposits are rising as a local policy concern. A dollar in New York accounts serves the same screen role as one in Buenos Aires or São Paulo, but for Latin America—where liquidity has long been scarce—these two dollars are not equal. One can support local financial systems during crises; the other cannot.

Argentina has the world's most dollarized cryptocurrency market by trading volume. This trend extends regionally: in Brazil, institutional stablecoin trading surged from 5% of total crypto trade in 2024 to 84% in 2025. Mexico’s Senate is discussing a peso-pegged stablecoin regulation bill.

Argentina's approach to stablecoins reflects broader concerns. All dollar assets held by firms and individuals are currently deposited offshore, which policymakers must eventually address as more than just market dynamics.

Should Latin America force some dollars back domestically? Similar cases exist: Kenya’s Finance Ministry proposed in July that stablecoin issuers hold at least 30% of customer funds in local banks. While Latin America has no such rule yet, the logic behind Kenya's move—aiming to secure funds for local financial systems amid acute dollar shortages—is already relevant in Argentina and Venezuela, with regional finance officials likely considering similar plans.

This decision is far from easy. No current policy, including Argentina’s PSAV system or Brazil’s 2024 regulations, has attempted this approach, which could be seen as a positive evaluation point.

Enforcing local custody mandates would likely split liquidity currently concentrated in USDT and USDC, eroding the convertibility needed for remittances via local collateralized products. Demand might shift to non-compliant trading, defeating regulatory intent.

A preferable alternative is coexistence: both locally held and offshore dollar assets should be regulated and allowed to move freely between them, letting users choose their preferred dollar location.