Stablecoins and reshaping of finance

Stablecoins are on the rise in global finance, promising to facilitate faster and cheaper payments and lead a wave of financial innovation. But what if that wave erodes governments' control over money and debt, fundamentally reshaping how modern economies manage inflation, stabilise markets, and finance public spending?

- ANGUS ARMSTRONG DENNIS J SNOWER

Jeremy Allaire, CEO and co-founder of the Circle Internet Group, reacts to the price of first trades, on the day of the company's IPO, at the New York Stock Exchange in New York, on June 5.REUTERS

(REUTERS)

This prospect has received surprisingly little public attention. As digital tokens backed by assets such as dollar deposits or US Treasury bills, stablecoins are redeemable on demand. When demand for them rises, issuers create new tokens and buy more Treasuries; when investors redeem tokens, those issuers must sell Treasuries. Stablecoin issuers thus are conducting their own miniature version of what the US Federal Reserve does: creating and withdrawing liquidity from the financial system. But unlike the Fed, they do so for profit, not public purpose.

The stock of dollar-denominated stablecoins outstanding has skyrocketed from US$138 billion (4.5 trillion baht) at the start of 2024 to $308 billion in October this year, and some financial institutions project that this figure could reach $2 trillion by the end of the decade. While the Bank for International Settlements (BIS) cautions that stablecoins fall short of serving the same functions as money, because they are not strictly interchangeable with central-bank currency, the passage of the US GENIUS Act may change these perceptions.