Latin America’s Stablecoin Dilemma: Where Should Backing Dollars Reside?

Regulators in the United States are debating who may issue a dollar‑pegged token, what collateral must back it, and how audits should be performed. In Latin America, the core issue is not which stablecoin wins, but where the dollars that back those tokens are held.

Offshore Dollars vs. Domestic Reserves

A dollar held in a New York reserve account functions the same on a user’s screen as a dollar held in Buenos Aires. However, for economies where hard currency is scarce, a locally‑based dollar can support the domestic financial system, while an offshore dollar cannot.

Regional Trends

• Argentina is the most dollarized crypto market by volume.
• Brazil saw institutional stablecoin volume rise from 5% of local crypto flows in 2024 to 84% in 2025.
• Mexico’s Senate is debating regulation of peso‑pegged stablecoins.

Policy Proposals and Risks

Kenya’s Treasury has suggested that stablecoin issuers keep at least 30% of customer funds in domestic banks. No Latin American regulator has adopted a similar rule yet, but the idea resonates in countries with chronic dollar scarcity such as Argentina and Venezuela.

Mandating local reserves could fragment liquidity, reduce convertibility for remittances, and push users toward unregulated channels, undermining the goal of supervision.

Possible Path Forward

A balanced approach could allow both locally‑reserved and offshore‑reserved dollar instruments to operate under supervision, with the ability to move freely between them. This coexistence would let users choose where their dollars are held while keeping the ecosystem within a regulated framework.