Financial Subordination Goes Digital: Assessing the Drivers of Brazil’s Exchange Rate Instability

Since the crisis of the Bretton Woods order, capitalist economies have experienced a pervasive impulse to financialization, characterized by the growing importance of financial practices and motives alongside the dissemination of market reforms such as the removal of capital controls and the erosion of financial regulation. Beside the negative implications for growth and income distribution, this process has led to recurrent episodes of financial instability, especially in emerging and developing economies.

The rise of financial technology (FinTech) has emerged as a critical juncture in the financialization trend. Dating back to the 2000s, this process gained momentum after the COVID-19 pandemic, ranging from more conventional uses such as digital banking and payments to the dissemination of crypto-assets such as unbacked tokens (e.g., Bitcoin) and stablecoins (e.g., Tether).

Against this background, a new working paper by Pedro Perfeito da Silva and Marina Zucker-Marques sheds light on how the rise of digital banking and crypto-assets is shaping financial subordination—defined as the structural and systemic relationships produced and maintained by global financial institutions, private actors and local elites that constrain the domestic economic and policy autonomy of developing and emerging economies. They identify and focus on a particular subset of the FinTech ecosystem, which they refer to as “ForexTech.” ForexTech describes the process of leveraging technology to facilitate and mainstream access to foreign currency-denominated assets and services. The authors also propose the term “digital sin” to characterize the phenomenon of allowing—or even encouraging—resident capital outflows through ForexTech channels.

The authors argue that a key distinction of ForexTech is that it empowers private actors to circumvent national financial regulations on cross-border payments, making emerging and developing economies even more vulnerable to exchange rate instability, capital outflows and even dollarization. To assess this argument, they build an exploratory case study centered on Brazil’s recent episode of exchange rate instability, which reached its peak in December 2024.

Main findings:

• Between 2018 and 2024, the 11 largest ForexTech institutions in Brazil increased their participation in the spot foreign exchange interbank market from 1 percent to 7.1 percent. In both 2023 and 2024, these institutions facilitated the channeling of almost $30 billion per year from Brazil on a net basis, excluding trade in goods and services.
• ForexTech is making foreign exchange more accessible while spreading risk across a wider population. The average transfer amounts for ForexTechs range from $300 up to $188,000. In contrast, traditional banks have average transfer volumes in the millions.
• The rise of crypto-asset transactions has had strong implications for cross-border capital movements.
  • For instance, from 2020 to 2024, capital outflows via the purchase of crypto-assets accounted for an average share of almost 20 percent of the sum of capital and financial accounts in Brazil’s balance of payments.
  • In 2024, the country also experienced a peak of net outflows associated with crypto-assets—almost $17 billion—which corresponds to roughly 25 percent of the country’s trade balance of goods and matched the total trade balance (i.e. the one combining goods and services).
• The number of people (including both legal entities and natural persons) holding crypto-assets in Brazil reached a peak of 9.2 million in November 2023. In terms of volume, holdings peaked in December 2024—when foreign exchange pressure in Brazil was at its highest—reaching the equivalent of $8.5 billion.
• Stablecoins centered on the US dollar accounted for almost two-thirds of crypto-asset transactions between 2020 and 2024, while real-denominated stablecoins accounted for just 3 percent.
  • This supports the argument that crypto-assets provide a new channel for financial subordination, reinforcing US monetary power and further weakening the position of the Brazilian currency in the global hierarchy.

Overall, the paper indicates that hands-off regulatory approaches increase financial vulnerability and deepen financial subordination in emerging markets. If left unregulated, the ForexTech sector could increase foreign exchange instability, worsen the balance of payments and even fuel dollarization. The authors conclude that safeguarding monetary sovereignty requires proactive and adaptive regulation, even amid limited international coordination and substantial domestic challenges.