Will Stablecoins Play A Critical Role In The Future Of Money?

Are Stablecoins a Threat to Banks?

  • Banks and other financial institutions view stablecoins as a threat to the existing financial system.
  • Central banks across the world are considering launching CBDCs as direct competitors to stablecoins.
  • About nine countries have launched their own digital currencies, and several others are actively considering the move.

The regulation of stablecoins has been a huge deliberation amongst banks and other financial service providers. Key players within the banking sector believe banks should wield more control than stablecoin issuers. This sentiment was recently echoed by Scott Beck, chief executive officer of United Texas Bank, who called for more policies that gave banks more control over stablecoins than crypto firms.

Beck proposed restricting the issuing of U.S. dollar-backed stablecoins to authorized banks rather than companies such as Circle. He made these claims while recently speaking at Austin’s Texas Work Group on Blockchain Matters.

The Texas Bank boss further cited a previous report issued by the president’s working group on financial matters, which proposed same-level recognition for stablecoin issuers and federal and state licensed banks. Becks argued banks are the most suitable organizations to handle stablecoins if they are recognized as money.

The Texas Bank CEO believes banks have the legal structure to handle stablecoins which are pegged to fiat and are more trustworthy than crypto issuers since they are regulated at both state and federal levels. He said,

Bringing stablecoin activities into the banking sector and prohibiting non-banks from issuing stablecoins will enhance consumer protection and attract additional resources and capital to this emerging area of economic activity.

Several lawmakers have echoed similar desires in recent months. In addition, with the world going digital, several people have turned to crypto service providers for cheaper and faster access to financial services.

Will CBDCs Replace Stablecoins?

The crypto industry has gained mainstream attention due to its potential to change the financial landscape and aid financial inclusion. Crypto, however, has a stronger reputation as a store of value than as a means of financial exchange.

But all that is slowly changing as more monetary institutions and private firms roll out stable crypto as mainstream payment vehicles. Most investors view stablecoins as less volatile than bitcoin and other cryptocurrencies. Additionally, most of the buying and selling in crypto is done through stablecoins.

Stablecoins are currently making waves in the financial space, and many banks and regulators see them as a threat to the existing financial system. To compete with the stablecoins market, several financial bodies such as central banks are launching CBDCs, Central Bank Digital Currency. These digital tokens are tied to the value of a national currency and used for payment within that region.

About nine nations have already launched their digital tokens. The European Central Bank has also signified its interest in joining the trend and launching a digital Euro across its member countries. Some of these efforts to launch CBDCs have been motivated by concerns about the effect of privately issued stablecoins on the conventional financial systems and monetary policy, as well as the desire to increase financial inclusion, streamline payments, and improve private citizens’ access to public money. Launching CBDCs also give central banks direct control of the modern trends in the financial system.

Crypto experts believe several banks are currently considering CBDCs in a bid to compete with stablecoins. CBDCs will have more legal backing than stablecoins, giving banks an edge in the race for digital supremacy.

However, some bank regulators believe CBDCs and stablecoins can coexist simultaneously. But, with many governments set to regulate the crypto space, there are concerns that the existence of stablecoins could be threatened, giving way for CBDC as a government-backed option.

Lawrence Woriji Verified

Lawrence has covered some exciting stories in his career as a journalist, he finds blockchain-related stories very intriguing. He believes Web3 will change the world and wants everyone to be a part of it.

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