How Emerging Markets Can Use Blockchain Payments Without Losing Financial Stability

Writer

Sofi Håkanson

Chief Growth Officer

Blockchain-based payments are moving rapidly into the financial mainstream, largely driven by recent regulatory developments such as MiCA in Europe and the GENIUS Act in the United States. For many countries, the technology promises faster cross-border payments, lower costs, and more efficient global trade.

But for emerging market economies, this innovation also creates a difficult policy dilemma.

Most blockchain-based payment models today are built around USD-denominated stablecoins, allowing individuals and businesses to move funds across borders instantly – often outside the traditional banking system.

While this can improve financial access and efficiency, it also creates risks for countries with fragile currencies or limited hard currency reserves. If stablecoins become widely used for savings or transactions, economies may face accelerated capital flight, pressure on foreign exchange reserves, and even involuntary dollarization.

At the same time, stablecoins operating outside the traditional financial system can make it harder for authorities to monitor financial flows and prevent illicit transactions. Simply banning or restricting them may reduce these risks, but it does not change the underlying shift toward instant, token-based payments.

For emerging markets, the challenge is therefore not whether blockchain-based payments will shape the future of finance, but how to adopt the benefits of the technology without losing control of their monetary systems and maintain financial stability. And there is a path that combines the advantages of token-based payments infrastructures with the controls of the traditional financial system.

The Emerging Market Dilemma of Involuntary Dollarization

In many emerging economies, banking systems can be fragile and access to hard currency reserves is limited. Historically, individuals have often held savings in U.S. dollars in cash to protect themselves from volatile local currencies.

Stablecoins make this significantly easier.

Instead of storing physical USD, individuals can now hold USD-denominated stablecoins on their phones and move them across borders instantly. In times of economic distress, this can accelerate capital flight and increase pressure on already fragile balance-of-payments positions.

The issue goes beyond capital outflows. Because most stablecoins are denominated in U.S. dollars, widespread use risks leading to involuntary dollarization. If individuals and businesses begin transacting in USD stablecoins instead of local currency, domestic monetary policy tools become less effective.

In practice, economic stability may become increasingly tied to the monetary policy of the U.S. Federal Reserve, rather than the country’s own central bank. This is not a desirable outcome.

Why Some Countries Are Restricting Stablecoins

Given these risks, several emerging market regulators have taken steps to restrict or limit USD-based stablecoins. From a central bank perspective, the concern is not the technology itself. The issue is losing control of the monetary system and financial flows. At the same time, blockchain technology clearly offers important advantages for payments:

• Faster settlement

• Lower transaction costs

• Greater transparency

• Reduced reliance on correspondent banking chains

The challenge is therefore how to capture these benefits without compromising monetary sovereignty or regulatory oversight.

A Third Path: Network-Based Tokenized Deposit Networks

There is, however, another approach. A third path where both the benefits of these new payment technologies can be reaped but without risking the “dollarization” which might occur with Stablecoins.

One alternative is network-based tokenized deposit networks, where regulated financial institutions move value between each other using blockchain technology.

In this model, tokenized deposits represent digital representations of bank deposits issued by regulated financial institutions, designed to operate across shared infrastructure rather than within a single bank.

The concept can be described as network-based tokenized deposits – bank-agnostic tokenized deposits interoperable across multiple institutions on shared infrastructure.

Within such a network, tokenized deposits circulate between regulated financial institutions in a permissioned environment, ensuring transactions remain subject to the same frameworks that already govern cross-border payments, including:

• Regulatory supervision

• AML and compliance controls

• Existing capital controls

This allows countries to modernize payment infrastructure without weakening the safeguards already built into the financial system.

How Network-Based Tokenized Deposits Differ

As mentioned, there are three main token-based settlement models are emerging for cross-border payments; stablecoins, single-bank tokenized deposits and network-based tokenized deposits.

But how do they work more in detail? While all three use blockchain technology, they differ significantly in governance and financial structure:

In practice, cross-border payment flows may combine elements from the models, using stablecoins and tokenized deposits in complementary roles. We explore this hybrid approach in more detail in our article on blending stablecoins and tokenized deposits for cross-border payments.

The Role of Networks Like Centiglobe

Networks such as Centiglobe Connect apply the network-based tokenized deposits model to cross-border payments by enabling financial institutions to transact using bank-agnostic tokenized deposits interoperable across multiple institutions on shared infrastructure.

Participating banks and payment providers can transfer value instantly while remaining fully integrated with existing regulatory and compliance frameworks.

This allows institutions to capture the efficiency benefits demonstrated by blockchain-based payment technologies, similar to those seen in stablecoin ecosystems, without moving transactions outside the regulated financial system.

For emerging markets, this approach offers a way to modernize cross-border payment infrastructure while preserving monetary sovereignty and regulatory oversight.

Innovation Without Losing Monetary Sovereignty

For emerging markets, blockchain technology is already reshaping global payments.

The key question is how to adopt these innovations in a way that strengthens, rather than weakens financial systems.

Network-based tokenized deposit payment infrastructures provide one possible path forward. By combining the efficiency of blockchain technology with the safeguards of the regulated banking system, countries can modernize cross-border payments without exposing their economies to uncontrolled dollarization or capital flight.

In other words, the benefits of blockchain-based payments can be realized while maintaining control over national currencies and financial stability.