A new study from the Bank for International Settlements (BIS) has provided quantitative evidence for a long-suspected link: the world of crypto is directly impacting traditional foreign exchange markets.
The BIS working paper reveals a clear causal chain. First, a surge in demand for dollar-backed stablecoins creates a price gap, or 'parity deviation,' where stablecoins trade at a premium over actual dollars. The study found that a 1 percentage point increase in net inflows leads to a roughly 0.40 percentage point widening of this gap.
Second, this pressure spills over into the broader financial system. The same 1 percentage point inflow was found to cause a 0.05 percentage point depreciation in the local currency and a 0.05 to 0.10 percentage point increase in dollar funding costs, known as the CIP premium. This happens as financial intermediaries, constrained by their balance sheets, engage in arbitrage between the two markets, transmitting the price pressure.
This mechanism is particularly relevant now due to a convergence of factors. The strong US dollar, fueled by hotter-than-expected inflation data, is already putting pressure on emerging market currencies like the Korean won. With the won trading near 17-year highs against the dollar (around 1,500 KRW/USD) and the Bank of Korea's policy options limited, investors may increasingly look to stablecoins as an alternative way to access dollars.
Furthermore, the market's structure is evolving to strengthen this link. The upcoming launch of a won-dollar perpetual futures product by EDXM International, which uses stablecoins as collateral, creates a more direct, institutional-grade bridge between the on-chain and traditional FX worlds. This development could amplify the very spillover effects the BIS has identified, making the Korean won, which is already the second-most traded currency against crypto assets, particularly vulnerable.
- Parity Deviation: The price difference between a stablecoin and its underlying asset (e.g., when a $1 stablecoin trades at $1.02, the deviation is 2%).
- CIP (Covered Interest Parity) Premium: The extra cost to borrow U.S. dollars in the offshore market compared to borrowing locally and swapping into dollars, indicating a shortage or high demand for dollars.
- On/Off-Ramp: Services that allow users to convert fiat currency (like KRW or USD) into cryptocurrency and vice versa.