How does fiat currency devaluation affect stablecoins?

[jasper]

When the value of a fiat currency drops, stablecoins pegged to that currency can lose purchasing power too. This means even though the stablecoin price stays at $1, what you can buy with it may shrink. It’s like holding onto an anchor in a sinking ship—it’s stable, but the ship is going down!

 

[Munashak]

Fiat currency devaluation can erode the value backing fiat-pegged stablecoins, especially those pegged to weakening currencies. This creates challenges for maintaining trust and stability, potentially driving users to alternative assets like crypto-backed or algorithmic stablecoins. In volatile markets, devaluation risks make it harder for stablecoins to preserve their purchasing power.