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The Stablecoin Threat
Congress passed the GENIUS Act this month giving regulators up to 18 months to issue rules, officially blessing stablecoins for widespread use in the United States.
Stablecoins were designed to maintain a stable value over time by pegging them to an asset such as the U.S. dollar. Most stablecoins currently facilitate other cryptocurrency transactions. But they could transition from a niche product to one that can handle mainstream business-to-business and consumer transactions, a space typically dominated by banks, according to a June report from Deloitte. “As the adoption of stablecoins increases, the potential for disintermediation of existing financial systems becomes more pronounced,” Deloitte wrote.
Would banks lose significant levels of deposits to nonbanks, which will be able to issue stablecoins to compete with banks under certain regulations? After all, the U.S. Congress declined to protect the banking system the way the European Union did, which requires issuers to hold a minimum amount as deposits in regulated banks. The risk of disintermediation of the U.S. financial industry is there. But how big is it?
Certainly, the growing use of stablecoins or other digital assets could put pressure on traditional bank deposits, especially noninterest-bearing transaction accounts. That could hurt lending capacity, as deposits fund loans.
Still, “for stablecoins to achieve broader adoption domestically, they would need to offer a compelling advantage over existing consumer and commercial payment systems, which are already widespread, generally low-cost, user-friendly and increasingly fast,” Moody’s Ratings wrote in a note July 7. “We view the likelihood of a significant shift in domestic payments toward stablecoins as relatively modest. The more immediate opportunity appears to lie in cross-border payments, which remain slow and costly.” Moody’s added that Bank Secrecy Act and anti-money laundering regulations — more so than technology — may be slowing down cross-border payments from legacy financial institutions. Those laws aren’t going away. Even nonbanks that offer stablecoins will have to comply with them.
Christiano Ventricelli, vice president and senior analyst at Moody’s Ratings, says legacy payment intermediaries such as Swift, The Clearing House, Visa and Mastercard won’t be disintermediated anytime soon. They may have to transform their business to accommodate new technologies. But they offer something crypto companies don’t. “Trust cannot be replaced with a piece of code,” he says.
• Naomi Snyder, editor-in-chief for Bank Director
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