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A message appeared on my LinkedIn recently. Africans were performing a traditional festive dance at theAfrica Stablecoin Conference in Johannesburg.

The image made me feel a sense of dread.

Why? Although stablecoins may promote financial inclusion in Africa, could this enthusiasm signal the possible shift of monetary authority from African nations to the economy that issues the most desirable currency-backed stablecoin?

Cryptocurrencies known as stablecoins are created to keep a consistent value, usually by being tied to a reference asset such as a national currency (for example, the US dollar), a commodity (such as gold), or a collection of assets.

The utilization of stablecoins in Africa is increasingthe rise, especially in Nigeria, South Africa, and Kenya. This increase is fueled by currency instability, inflation, and restricted access to reliable foreign currency via conventional banks. These issues lead some individuals to use US dollar-backed stablecoins for saving, protection against value loss, and sending money.

Some of their attractiveness lies in their ability to cross borders faster, cheaper, and more effectively than traditional assets. In South Africa, a robust regulatory and financial framework existsincreasedinstitutional trust, increasing the adoption of stablecoins from retail to business payments, transfers, and other business-to-business activities.

Their stability is usually achievedvia reserves, security, or algorithmic methods that limit significant price fluctuations.

My book, The Legal Framework for Financial Technology in Africa, viewed their activities as a cryptocurrency asset in African nations. I expressed worries regarding their possible effects on developing economies, including those in Africa, in2019 and 2020. A recent International Monetary Fund paper has echoed these concerns.

The journey so far

Stablecoins were introduced in 2014 to minimize the fluctuations of cryptocurrency assets for holders looking to convert a high-value crypto-asset before it plummeted. Cryptocurrency values tend to drop quickly because they are very speculative, influenced by market sentiment, and can be sold in large quantities instantly, leading to panic-driven sell-offs.

The top ones areUSDT and USDC denominated in US dollars issued by private companies Tether and Circle, respectively. However, stablecoins remained unregulated for approximately 10 to 11 years prior to theCrypto-assets Markets Regulation (MiCA) in 2024 and the US Genius Actin 2025. Throughout this time, there were no regulations requiring transparency about these digital assets.

Not all are under control,criticismsbe full of concerns about the quality and unclear nature of the assets that support them, as well as their ability to handle withdrawal pressures or significant cash redemptions by stablecoin holders.

These critiques emerge due to the frequent ambiguity regarding the liquidity, safety, and transparency of the assets that support stablecoins, leading to concerns about whether unregulated providers might struggle to fulfill significant, unexpected redemption requests. This is important because the stablecoin market is valued at roughlyUS$300 billion, so a decline in trust might lead to widespread withdrawals and create issues that extend far beyond the cryptocurrency market.

Potential problems

The increase in the adoption of stablecoins brings a potential threat of dollarization, asNearly all of the stablecoin market is made up of US dollar-backed stablecoins.. Dollarisation refers to the widespread use of the dollar within local African economies. It may pose a risk to the monetary independence of African nations and contribute to the outflow of capital from African economies.

To avoid this issue, African officials and central banks would first have to be ready to implement controls or caps on the quantities of these US dollar-based or foreign-currency stablecoins that can exist within their economies at any point. This is aimed at safeguarding the risk to monetary independence.

Secondly, African economies must also establish robust policy structures that enable them to foster trust in their currencies, thereby reducing the likelihood of dollarization.

Thirdly, they might explore creating their own stablecoins. This could involve a local currency-backed stablecoin or a regional one. To avoid capital leaving the economies, these stablecoins could be supported by a commodity or a collection of commodities, drawing from Africa’s abundant natural resources and minerals like precious stones, gold, diamonds, crude oil, and cobalt. For a broader appeal, a dollar value could be established based on these commodities.

As the suggested African-supported stablecoin would function as a local currency pegged to the US dollar, it could facilitate domestic, regional, and international transactions without relying on US dollars, whose reserve assets are stored outside the country and in the United States.

Fourthly, they might also explore the possibility of launching their own retail initiativescentral bank digital currency, as this would produce precisely the same outcome asfiatbut in a digital format. It would hold the same level of trust as fiat currency, which would need to be established to prevent the risk of dollarization.

The risks

As stablecoins denominated in US dollars make up99%in the stablecoins market, the increasing adoption in Africa suggests that stablecoins have intensified dollarization.

Dollarisation is already present and common throughout Africa. It varies from limited and informal to deep and structured, depending on the specific circumstances of each country, but stablecoins speed up and strengthen this trend. Conventional dollarisation (individuals and businesses using US dollars informally for savings and trade) is still restricted by physical currency, banking access, and foreign exchange regulations.

Stablecoins provide immediate access to dollar-based liquidity through a mobile device, skipping traditional banks, foreign exchange limitations, and local currency systems. They function as “digital dollars,” moving beyond the regulatory oversight of central banks.

The US Genius Act subjects issuers to US regulatory control. It ensures that stablecoins denominated in US dollars are secure, liquid, and supported by institutions, making them more appealing than numerous African local currencies, particularly in periods of high inflation.

As a result, what was previously an informal safeguard has evolved into a formal, internationally recognized digital substitute for local currency, speeding up the flow of capital, reducing the creation of deposits, and challenging domestic monetary policy.

This has direct monetary sovereignty implicationsfor nations like Nigeria and Kenya. In Nigeria,persistentForeign currency shortages and instability in the naira have led households and small businesses to turn to Tether (USDT) and USD Coin (USDC) as tools for managing working capital and storing savings.

After the Genie Act, these instruments will gain greater institutional strength, leading to increased reliance on US-dollar payment and settlement systems that operate and are regulated outside the nation’s financial framework, thereby diminishing the Central Bank of Nigeria’s capacity to affect liquidity, lending, and inflation.

In Kenya, where digital banking is already extensively integrated throughM-Pesa, US dollar-backed stablecoins provide a safeguard against the shilling, circumventing local credit generation and undermining the Central Bank of Kenya’s monetary policy effectiveness.

In both instances, the US Genius Act significantly transfers monetary control from African central banks to American regulators and private entities—unintentionally, through market-driven motivations. Stablecoins therefore go beyond simply reflecting current dollarisation; they legitimise it on a large scale, integrating it into Africa’s digital financial infrastructure.

Another potential danger is the movement of capital away from African economies towards the regions where the stablecoins are supported.

In conclusion, stablecoins have the potential to significantly enhance financial inclusion across Africa, yet excessive dependence on foreign-currency-backed stablecoins may exacerbate dollarization and undermine monetary independence.

Next steps

To address these dangers, African economies require more robust policy structures to enhance currency trust and minimize the likelihood of dollarization. This implies that the budget deficit needs to be controlled—essentially, governments should avoid spending significantly more than they generate. Current account positions must be handled effectively, and foreign exchange, banking, and corporate sector balances should be carefully tracked.

In my opinion, central banks should lead the way in these advancements, potentially including the creation of their own tokenized money or digital currencies. This approach can function alongside stablecoins without letting privately created, foreign-based stablecoins take over as the main digital currency within a country.

Therefore, although the dance at the stablecoin summit was praiseworthy, I worry that only a single aspect—examining the advantages of stablecoins in enabling payments and financial inclusion—is being highlighted.

Officials need to clearly explain the effects of stablecoins denominated in foreign currencies and develop suitable countermeasures.

Iwa Salami, Professor of Law, University of East London

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