The popularity of stablecoins could soon fade, replaced by tokenised deposits, or digital versions of traditional bank deposits, Bank of England policymaker Megan Greene said on Sunday, even as some colleagues took a different view.
Stablecoins, which are crypto assets designed to maintain a stable value, have grown in popularity in recent years and a further rise is still expected by some after issuance levelled off in recent months.
“I think tokenised deposits are probably going to take over from stablecoins and five years from now, I suspect we might wonder why we were talking about stablecoins,” Greene told a conference in Dubrovnik, Croatia.
She argued that there is a market for central bank digital currencies, stablecoins and digital deposits, but said this last product may be the ultimate winner once commercial banks recognise they are otherwise going to lose traditional bank deposits.
FINANCIAL INNOVATION
By contrast, speaking on the same panel, U.S. Federal Reserve policymaker Christopher Waller defended stablecoins and argued that they are a financial innovation that may reduce costs, which should not be quashed by excessive regulation.
“I’ve always just looked at stablecoins as a payment instrument; there’s nothing evil about it, nothing dangerous about it,” Waller said. “They are just bringing competition into the payments world.”
Greene said digital deposits “haven’t taken off because commercial banks don’t want to lose the fees … But they’re going to lose them anyhow and when they realize this, they will put more (effort) into developing these.”
She argued that stablecoins are not so stable, there are questions about how they are regulated, and some of them are also used for illicit purposes.
Another issue is that stablecoins take deposits away from commercial banks and thus may reduce the effectiveness of monetary policy.
“These things are used for cross-border payments, and they are scaring the banks,” Waller said. “If you think banks don’t think this is a threat, then why are they lobbying so hard to stop it?”
Still, Greene said the future may be working against stablecoins, given the limitations.
“I like to think of it as a massive race between the tortoise, the hare and the rhino,” she said.
“The tortoise is the central bank digital currency …the hare is stablecoins and the rhino is tokenised deposits. We’ll probably end up with all three, but if I had to put money in one … it would be the rhino, tokenised deposits, which I think will probably take off.”
(Reporting by Balazs Koranyi)
