Stablecoins are cryptocurrencies pegged to the US dollar, which are gaining traction, especially when they offer interest to their holders. Banks in the US are starting to worry that the popularity of stablecoins could cause their deposits to flee to crypto, raising the risk of a ‘bank run’.
Standard Chartered estimates that if stablecoin adoption increases rapidly, US bank deposits could shrink by up to a third of the total stablecoin market, currently worth more than $300 billion.
Banks worry that the reduced deposits will limit their ability to lend, as banks need deposits to fund their credit and operations.
However, economists and regulators insist that so far, there is no hard evidence that stablecoins have had a significant impact on bank deposits.
Brookings’ Aaron Klein says that stablecoins are mostly used for crypto activities or stores of value in non-dollar countries, and have not yet become a major deposit medium in traditional banks.
In Europe, regulators are also looking at stablecoins as a means of payment in the crypto ecosystem, which is still rarely used by ordinary consumers.
Therefore, risks such as currency drift, dollarization, or financial instability remain low for now.
However, if stablecoin adoption surges, it could pose new challenges including the risk of bank runs, cross-border regulatory issues, and tensions with the traditional financial system.
Meanwhile, stablecoin proponents argue that prohibiting interest would only move capital out of US control and weaken the country’s financial competitiveness.
Jeremy Allaire, CEO of Circle, described the banks’ concerns as unreasonable, as interest on stablecoins helps attract customers without compromising monetary policy.
Anthony Scaramucci, meanwhile, mentioned that China is now allowing banks to provide interest on the digital yuan, giving them an advantage in attracting global capital flows.
In conclusion, stablecoins could be an opportunity or a challenge depending on how they are regulated and used. For now, bank concerns are still theoretical, and experts believe that the future of stablecoins will depend on the balance between crypto innovation and the stability of the traditional financial system.
