Latin America's Dollar Stablecoins: Where Should Reserves Be Held?

The stablecoin debate in Washington centers on key traits: who may issue a token, what must back it, and how audits are conducted. The Federal Reserve, the US central bank, and the OCC — the regulator overseeing national banks — cannot merely accept that a token is valued at one dollar; they must control who is permitted to make that claim.

A dollar-pegged token effectively represents the country's own currency.

Latin America is regulating something structurally different: access to a currency that no government in the region controls. For a saver in Buenos Aires, Bogota, or Mexico City, it hardly matters whether the token backing their savings is USDC, USDT, or any other that wins the competition, as long as it maintains its peg and the custodian is solvent.

This asymmetry explains a mistake that regional regulators keep approaching: importing Washington's dispute over issuer specifications, when the actual problem here is different and more challenging.

The true issue is not which stablecoin prevails. It is where the dollars supporting it should reside.

Offshore Dollars Turn Into a Domestic Policy Challenge

On a user's screen, a dollar in a New York reserve account functions identically to a dollar in a reserve account in Buenos Aires or Sao Paulo. However, for a regulator in a region where hard currency has been the state's most scarce resource for decades, those two dollars are not the same. One remains accessible to the local financial system during times of stress. The other does not.

Argentina continues to be the world's most dollarized crypto market by share of volume, but this trend is regional: in Brazil, institutional stablecoin volume rose from 5% of local crypto flows in 2024 to 84% in 2025, and Mexico's Senate is currently debating a bill to regulate peso-pegged stablecoins.

An increasing portion of household and corporate dollars held in instruments that are entirely offshore will eventually appear as a policy issue that needs solving, rather than a market result to ignore.

Should Latin America Bring Stablecoin Dollars Back Home?

This situation has a precedent. In July, Kenya's Treasury proposed that stablecoin issuers must hold at least 30 percent of customer funds in banks based in the country. No Latin American regulator has yet made a similar proposal, but the reasoning behind Kenya's rule — chronic dollar scarcity combined with a financial system attempting to regain some control over flows it can no longer stop — is arguably more pressing in Argentina or Venezuela than in Kenya. It would be surprising if no one in the region's finance ministries is already drafting something comparable.

This is not a straightforward decision. None of the region's existing frameworks — neither Argentina's PSAV regime, Brazil's rules that have been in effect since February, nor the bill in Mexico's Senate — have attempted to address this yet, and one of their underappreciated strengths is that they have not.

In my view, mandating local reserves would break up the liquidity that currently resides almost entirely in USDT and USDC, remove the convertibility from domestically-backed instruments that makes them valuable for remittances, and probably drive demand toward unregulated channels instead of compliant ones. This would undermine the rule's purpose.

The alternative worth aiming for is coexistence: locally-reserved and offshore-reserved dollar instruments that operate under oversight, can move freely between one another, and allow users to choose where their dollars reside.

Whether the region achieves this, or falls back on Kenya's more blunt instrument once dollarization becomes impossible to overlook, will determine how much of Latin America's dollar savings remain within a supervised system, and how much seeks an exit.