Debate on the digital dollar
Major banks have been calling for stricter rules for stablecoins for years. They warned of the risks of privately issued digital dollars operating outside the traditional banking system and advocated for stricter regulatory requirements, reserve requirements and stronger anti-money laundering measures.
However, as the adoption of new stablecoin laws approaches in the US, some banks are facing a new situation. Stablecoins that operate under regulatory rules could represent an alternative to certain banking services.
One of the main issues in the draft US CLARITY Act concerns whether stablecoin users are allowed to earn returns that would function similarly to interest. This is exactly what a large part of the debate is about.
In the background of the whole story there is a much broader question. Who will have a bigger role in the digital money and payments system in the future, traditional banks or stablecoin issuers?
Source: cointelegraph
Why did banks initially support stablecoin regulation?
Banks did not support regulation just because they were against the new technology. Their main concern was that stablecoins were creating an alternative financial system that was not subject to the same rules as traditional banks.
Stablecoins like USDt and USDC play an important role in cryptocurrency trading, international transfers, and decentralized finance today. Their total market capitalisation has grown to a level comparable to the balance sheets of individual medium-sized banks.
From the perspective of banks, several key issues have arisen. Are the reserves that support stablecoins really enough? Can stablecoins cause a sudden withdrawal of funds in digital form? Do issuers comply with anti-money laundering rules? And can a form of financial system that operates outside the normal regulatory framework be developed?
That is why banks have advocated for rules that would bring stablecoins closer to the standards that apply to financial institutions. This includes regular audits, licensing, and restrictions for higher-risk activities.
At the same time, many banks saw this as a business opportunity. They expected to be able to manage stablecoin reserves, provide custodial services, collaborate with issuers, or even issue their own stablecoins through regulated subsidiaries. At that stage, stablecoins were seen more as new financial infrastructure than as direct competition to banks.
Source: cointelegraph
Why do banks care about stablecoin yields?
The discussion further changed when the possibility of stablecoin holders earning interest-like returns began to be discussed. In that case, stablecoins would no longer only be used for payments and transfers, but could become an alternative to classic savings accounts. This could encourage some users to keep more of their funds on crypto platforms instead of banks.
Such a scenario worries banks because deposits are one of their main sources of funding. On the basis of these funds, banks grant loans, finance housing loans, business operations and other everyday activities. If a significant portion of deposits ended up in stablecoins, banks’ funding costs could rise.
This is why part of the banking sector opposes proposals that would allow stablecoin issuers or crypto platforms to pay yields that function similarly to interest, outside the usual regulatory framework for banks.
The debate is therefore no longer focused only on the regulation of cryptocurrencies. There is more and more talk about the question of who will have the right to offer digital dollars with the possibility of generating yields in the future.
Source: cointelegraph
Banks claim stablecoins could affect lending
Banking associations mostly present their remarks as a matter of the stability of the financial system, and not exclusively the protection of their own business. They point out that deposits of citizens and companies are important because they allow banks to finance loans throughout the economy.
If some of these funds were to move into stablecoins, banks could have less capital at their disposal to grant housing loans, finance small businesses, agriculture and consumer loans. The biggest pressure could be felt by the regional and smaller banking sector, which relies heavily on local deposits.
From a banks’ perspective, stablecoins that offer yields to users could attract funds from the traditional banking system into models that are not subject to the same capital and liquidity rules.
Of particular concern is the possibility of circumvention of the rules. Even if stablecoin issuers are not allowed to pay out yields directly, crypto platforms could still offer various reward programs or other benefits associated with holding stablecoins. Banking associations believe that such models could run counter to the objective of regulatory rules and that stablecoins should primarily be used for payments and transfers, rather than as a substitute for savings accounts.
Source: cointelegraph
How could regulation accelerate the development of stablecoins?
Banks have called for tighter scrutiny of stablecoins to reduce potential risks to the financial system. However, clearer rules could also have the opposite effect, as it could give stablecoins greater acceptance among financial institutions, businesses, and a wider range of users.
Clearly defined regulations typically reduce uncertainty for various market participants, including financial institutions, payment service providers, merchants, fintech companies, and large corporations. When there are clearer rules for doing business, more companies may be willing to use stablecoins in everyday transactions.
There’s a paradox here. Banks have been looking for regulation to limit the possible risks posed by stablecoins, but this same regulation could increase their acceptance and turn them into even more serious competition to traditional financial services.
In other words, the banking sector may have partially accelerated the inclusion of digital dollars in the traditional financial system precisely through demands for clearer rules.
Source: cointelegraph
What do stablecoin users need to know?
This discussion is also important for users because it will affect what kind of digital money options will be available in the future.
Stablecoins bring certain capabilities such as fast transfers, use in global transactions, connection to blockchain applications, etc. However, they are not the same as traditional bank deposits.
There are several important differences:
- Stablecoin funds are generally not covered by deposit insurance like the one provided by the FDIC in the US
• Stablecoin issuers may restrict or freeze certain addresses in certain situations
• the process of redeeming stablecoins may vary depending on the issuer
• How to manage reserves differs between different stablecoins
This is why stablecoins should be viewed as a special type of digital asset that has different rules of operation compared to bank accounts. Although they are designed to track the value of the dollar, how they are used, how reserves are managed, and the potential risks are different from traditional financial products.
Source: cointelegraph
The fight over the future of digital money
The stablecoin debate is no longer just a matter of technical rules for cryptocurrencies. It is increasingly turning into a broader debate about who will shape the future financial infrastructure.
For decades, banks have played a key role in managing deposits, payments and money transfers, as these activities have traditionally required large centralised institutions. Stablecoins based on blockchain technology represent a different model of value transfer because they enable fast digital transfers over global networks without relying on traditional banking channels.
Banks initially supported the regulation of stablecoins to introduce clearer oversight and control over their use. However, they now face the possibility that these same rules will help stablecoins become a more widely accepted form of digital money.
As a result, the debate has become more intense. One of the key questions in the current discussions is whether stablecoins will remain limited to certain forms of payment or will they find wider application.