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For centuries, money has been reassuringly simple. Central banks issued currency, commercial banks intermediated deposits and credit, and payments followed well-worn rails.
A ‘Stablecoin Supercycle’
That clarity is now dissolving. Stablecoins — blockchain-based tokens pegged to fiat currencies — are edging towards what enthusiasts call a “supercycle”: a phase of rapid proliferation that could reshape how money moves, where value is stored, and who controls the plumbing of finance.
Proponents argue that stablecoins solve real problems. In economies plagued by inflation or capital controls, a digital dollar offers stability and accessibility.
In markets with slow, expensive or unreliable payment systems, stablecoins promise near-instant settlement at a fraction of the cost.
They also act as a crucial bridge between crypto markets and the traditional financial system, providing liquidity without exposure to volatile tokens.
Why Policymakers Are Paying Attention
The geopolitical implications are not lost on Washington. By anchoring stablecoins to US dollars and Treasuries, the current US administration sees them as a mechanism to reinforce dollar dominance while creating incremental demand for government debt.
From that perspective, stablecoins are less a threat than an extension of American monetary influence.
Elsewhere, nerves are fraying. Central banks in Europe and beyond worry that large-scale migration of deposits into stablecoins could weaken monetary sovereignty and dilute policy transmission.
The European Central Bank, in particular, has accelerated plans for a digital euro, partly as a defensive response to privately issued money operating outside conventional banking channels.
The Banking System’s Structural Dilemma
The deeper concern lies with fractional reserve banking itself. Stablecoins are excellent payment instruments, but they do not create credit.
If households and businesses were to shift meaningful portions of their deposits into stablecoins, banks would lose a critical funding source, constraining their ability to lend. In extremis, this could make the financial system safer but poorer — liquid yet credit-starved.
Commercial banks are not standing still. Rather than ceding ground, many are experimenting with tokenised deposits: traditional bank money represented on blockchains.
These instruments preserve the core attributes of deposits — interest, regulatory oversight, and central bank backing — while adopting the efficiency of digital tokens.
Tokenised Deposits as the Countermove
Early pilots suggest tangible benefits. Multinational corporates can move funds across jurisdictions 24/7 without correspondent banks or settlement delays. Smart contracts enable automated escrow, conditional payments and real-time reconciliation.
Regulators, including the Bank of England, are actively shaping frameworks to ensure interoperability, compliance and systemic stability in what some officials now call a “multi-money” future.
Volumes remain small compared with global payment flows, but momentum is building. If technical standards converge, banks could modernise wholesale finance while neutralising the appeal of stablecoins as deposit substitutes.
An Inevitable Transition
Stablecoins will not replace banks, but they are forcing a long-overdue rethink of financial infrastructure. Tokenised deposits, digital currencies and programmable money point to a more automated, always-on system.
The direction of travel is clear: digitised finance is coming, whether incumbents like it or not. Those who resist may soon find themselves relics of a slower age.
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