As tokenised finance accelerates globally, central banks face a critical blind spot. While considerable effort has been invested in crafting regulatory frameworks for virtual asset service providers, far less attention has been paid to the supervisory infrastructure needed to enforce these rules. This gap threatens to undermine even the most proportionate regulatory regimes and the threat is particularly acute in emerging markets where dollar-backed stablecoins are reshaping monetary dynamics at unprecedented speed.
Analysis from the Cambridge Centre for Alternative Finance identifies this challenge as part of a widening ‘innovation delta’ – the gap between regulators’ capacity to supervise financial innovation and the rate of innovation itself. Among the delta’s four manifestations, the temporal mismatch proves most acute for supervision: most regulatory reporting relies on quarterly figures while tokenised finance moves in seconds.
The temporal mismatch and visibility problem
Traditional financial supervision operates on periodic reporting cycles designed for an analogue world. Banks submit quarterly returns, regulators conduct annual examinations and supervisory responses unfold over months. This temporal architecture fundamentally mismatches the operational reality of tokenised finance, where stablecoin transactions settle instantly and cross-border flows operate around the clock.
Global stablecoin transaction volumes exceeded $15tn in 2024. To give context, this matches Visa’s throughput. Yet unlike Visa, stablecoin flows often remain opaque to central banks unless they employ modern supervision technology. For central banks whose currency is not among the G7, this widening innovation delta coupled with expanding adoption of dollar-backed stablecoins poses an existential threat. The increasing use of dollar stablecoins transcends mere payments innovation; it represents a fundamental challenge to monetary sovereignty and the central bank’s ability to guide monetary policy.
The temporal gap creates a particularly acute problem: the loss of necessary visibility into foreign exchange flows. Rapid growth in the stablecoin market – dollar-denominated stablecoins comprise over 80% of the $200bn global market – is bypassing traditional banking oversight, rendering quarterly reports outdated and hindering central banks’ ability to manage exchange rates, assess external vulnerabilities and enforce capital controls.
Concern for the erosion of monetary control
In countries experiencing high inflation or currency instability, residents increasingly use dollar stablecoins as stores of value. Without modern supervisory technology and infrastructure, episodes of currency volatility can trigger large-scale capital flight that remains invisible to central banks. Central banks need visibility into these flows to understand their scale, velocity and impact on foreign exchange markets and monetary aggregates.
Nigeria provides a fitting example. In 2024, 20% of Nigerian residents reported that stablecoins account for more than half of their total portfolio, catalysed primarily by desire to access dollars given stringent capital controls. This represents capital flight operating at scale through channels that traditional supervisory tools cannot adequately monitor. In Pakistan, which receives $35bn in formal remittances, stablecoins are increasingly replacing traditional systems. The trends are evident: formal remittances fell from $31.3bn to $27bn in 2023 as flows shifted to unmonitored channels.
This is the crux of a fundamental concern for central bankers: stablecoin adoption and associated dollarisation risk could undermine monetary policy transmission and erode domestic bank deposits. Consider a central bank facing inflationary pressure that raises interest rates to tighten monetary conditions. Traditional monetary policy assumes this will reduce money supply growth and dampen demand. But without proper visibility into stablecoin conversions, the central bank cannot observe whether residents are shifting local currency deposits into dollar stablecoins or using another coping mechanism. By the time quarterly reports reveal the scale of these flows, the policy intervention window has closed. The money hasn’t left the economy. It has moved faster than the central bank’s capacity to take effective policy decisions.
Building supervisory infrastructure for modern markets
The solution is not prohibition – such bans have proven ineffective and counterproductive – but rather adopting suptech tools that provide visibility into regulated virtual asset activity and stablecoin flows. These tools cannot exist in isolation. They require analytical capability that combines on-chain monitoring with traditional finance surveillance and translates on-chain volumes into meaningful economic signals. Effective supervision demands a comprehensive platform that will integrate data spanning traditional and tokenised finance. What is the dollar-denominated stablecoin value held domestically? What is the velocity of domestic stablecoin holdings compared to traditional foreign exchange reserves? What proportion of remittance flows now occur through stablecoin rails?
Central banks can draw lessons from the fintech industry and leverage the properties of blockchain. Traditional payment providers are integrating stablecoin rails, creating hybrid systems that combine blockchain settlement speed with regulatory clarity. Blockchain-based proof-of-reserve systems shift supervision from periodic checking to continuous monitoring. Cross-chain interoperability protocols aggregate supervisory data, addressing the challenge that stablecoins pose as they operate across multiple blockchain networks.
Urgency of adoption
Suptech development must begin early in the regulatory process, not as an afterthought. Every quarter that central banks lack real-time visibility into stablecoin flows represents a quarter where financial stability risks accumulate unobserved and capital controls develop leakages. For emerging markets, delay compounds these costs and creates adverse selection in regulatory compliance.
Authorities need robust mechanisms for real-time sharing of supervisory information, particularly for the borderless nature of virtual assets and systemic risks. The challenge extends beyond national borders. Cross-border stablecoin flows that appear innocuous in one country may reveal significant patterns when aggregated. Both the Financial Stability Board and the International Organization of Securities Commissions identify cross-border co-operation as critical for effective virtual assets supervision. In their respective reports published in 2025, IOSCO emphasises the need for information sharing across the regulatory lifecycle, including during authorisation, supervision and enforcement stages. The FSB found that gaps in data quality and limited regulatory reporting by VASPs hinder effective monitoring of financial stability risks.
These concerning weaknesses in implementing FSB Recommendation 3 underscore the urgency for cross-border co-operation in supervision. The value of supervisory data increases substantially when multiple jurisdictions adopt compatible systems. Enhanced international coordination is essential to implement consistent oversight and address regulatory arbitrage risks.
As the CCAF notes in its analysis, without system-level innovation, the innovation delta will continue widening, creating space for regulatory arbitrage, jeopardising consumer protection, inducing financial instability and weakening public trust. For central banks, modern on-chain supervision tools are not merely an efficiency improvement but a necessity for fulfilling their mandates and for emerging markets, maintaining monetary sovereignty.
Modern finance requires modern supervision. Hopefully it will mitigate a modern financial crisis.
Jill Shemin is Head of Policy at EMTECH.
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