Capital markets are facing growing risks from stablecoins and AI-driven finance, according to the IMF, which says regulatory frameworks have failed to keep pace with innovation.
In a recent editorial for in-house magazine Finance & Development, senior economist Yao Zeng argues that while financial technologies are transforming global liquidity, oversight mechanisms remain rooted in outdated models.
“The global financial landscape has changed, yet the rules remain largely unchanged,” Zeng wrote.
Stablecoins—particularly dollar-pegged variants—are gaining traction in high-inflation economies, enabling low-cost, round-the-clock cross-border transactions. These instruments increasingly act as liquidity providers outside traditional banking channels, bypassing collateral requirements and regulatory scrutiny, the piece said.
Zeng warned that such systems may not function well under stress, raising concerns about contagion and counterparty risk. Nonbank entities are reshaping liquidity flows, potentially distorting asset pricing and undermining conventional credit transmission.
Institutional investors face uncertainty as AI tools are deployed in lending and asset allocation, often without robust governance, according to the editorial, which also highlighted how these developments could introduce new layers of risk into structured finance and private debt portfolios.
Regulators, Zeng noted, must act swiftly to modernise oversight. Without reform, allocators and market participants risk exposure to vulnerabilities that are not yet priced in.
The full article can be found on the IMF’s F&D website.
