But among finance types looking at how cryptocurrencies might shake up the actual banking system, a less racy crypto asset has been getting a lot more attention lately: stablecoins. They aren’t as exciting as bitcoin, as the name “stablecoin” suggests. However, they are surging in popularity thanks partly to US President Donald Trump’s policies, and more importantly, they could be genuinely useful when it comes to moving money around. Trump this year gave the sector a shot in the arm, with July’s GENIUS Act, which created a regulatory system for stablecoins, ensuring reserve requirements and subjecting issuers to anti-money laundering rules.
Trump, who’s made plenty of money from crypto, said at the time the bill would make America “the UNDISPUTED Leader in Digital Assets – Nobody will do it better, it is pure GENIUS!”. But it’s not just Trump: Europe, Hong Kong and Singapore have also announced or implemented plans to regulate the sector, and Australia is working up its own crypto regulations. Today, stablecoins are mostly used when people who are trading crypto assets want to settle in traditional money – which hardly sounds like a game-changer to most of us. But a recent paper by the IMF explores how they could have more and more real-world uses, as opposed to bitcoin, which is most useful as a speculative asset.
The most obvious area where stablecoins could be useful is in international money transfers, which are notoriously slow and expensive. When you send money overseas, it normally travels through a system known as “correspondent banking”, whereby your local bank talks to a foreign bank to settle the payment. The IMF says stablecoins – which are held on the “blockchain” – could do this job far more quickly and cheaply. Facebook tried something similar last decade when it planned to develop its own cryptocurrency, before abandoning the attempt in 2022 – but this year there have been reports that its owner Meta is considering another go at a stablecoin.
Over the longer term, the IMF argues stablecoins could expand further and into domestic retail payments for goods and services – though it’s harder to see that happening soon in Australia, where we already have near instant free payments between bank accounts. Bitcoin is used as a speculative asset, but experts say stablecoins could help to make international payments cheaper. They’re backed by certain assets, such as government bonds or bank deposits, and the sector’s value has tripled since 2023 to $US260 billion ($393 billion). Crucially, stablecoins can be moved around near instantly on a “digital ledger” – rather than having to go through the complicated plumbing of the banking system.
First, stablecoins can be used to help criminals launder money. Indeed, the IMF said they pose more “heightened” money-laundering and terrorism-financing risks than other cryptocurrencies because of their perceived stability. Second, the RBA has said that if stablecoins continue to grow as projected, they’ll become big enough to “materially affect the functioning of the market” for short-term US Treasury bonds, which are an important benchmark for US interest rates. “A sudden decline in sentiment towards stablecoins could trigger asset fire sales with the potential to spill over into repo and other core US funding markets,” the RBA says.
Third, some think stablecoins could challenge traditional banking. If stablecoins gain wide appeal, and they’re bought with funds deposited in banks, it could also force banks to find new types of funding. Jarden analyst Matt Wilson says that unlike bitcoin, stablecoins represent a real threat to banks because they can operate as an alternative form of digital money. Digital money already exists in banks (most deposits are digital, not cash) but this digital money can be moved only through a system of deposits.
And to accept deposits, you need a banking licence. Stablecoins could in theory perform the same functions as money, but without the need for banks acting as intermediaries. “It’s another representation of digital money but you don’t need to be a bank to have stablecoins or accept stablecoins,” Wilson says. “It’s a serious threat, given it could become a genuine alternative to a deposit and a payment.”
“We may not need to have a bank account to get paid. We could have a digital wallet that Google or Apple could supply,” Wilson says. “I think it’s a genuine threat to the banks. It could be three years, it could be in five years, but I think the direction is clear.” To be sure, these are possibilities that are probably too long-term and uncertain for most investors to be thinking about today. And in Australia, the value of stablecoins is currently tiny, so it looks like they are a long way from taking off here.
But then again, these changes can happen in unexpected ways. As Wilson says: “Did we ever think we would happily use a mobile phone to buy coffee, document our life to all, and bank, among other things?”
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