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03/27/2025

Stablecoins: On the Path to Becoming the New Normal in Global Finance?

Stablecoins are increasingly becoming a critical component of the modern financial system. With the ability to transact across borders, operate 24/7, and sidestep the price volatility of traditional cryptocurrencies, stablecoins have drawn attention from both investors and regulators alike. But can they truly break into the mainstream of global finance? Tokenization – An Inevitable Trend, But Still a Work in Progress "Tokenizing everything" — from equities and bonds to real estate — is

Stablecoins: On the Path to Becoming the New Normal in Global Finance?

Stablecoins are increasingly becoming a critical component of the modern financial system. With the ability to transact across borders, operate 24/7, and sidestep the price volatility of traditional cryptocurrencies, stablecoins have drawn attention from both investors and regulators alike. But can they truly break into the mainstream of global finance?

Tokenization – An Inevitable Trend, But Still a Work in Progress

"Tokenizing everything" — from equities and bonds to real estate — is emerging as a powerful trend. By moving financial assets onto a blockchain, systems can become more transparent, transactions faster, and reliance on traditional financial intermediaries reduced.

That said, the current financial system still depends on centralized institutions like banks, investment funds, and traditional exchanges. Digitized assets remain under the control of these entities rather than being truly decentralized in the way blockchain technology envisions.

Stablecoins and Their Impact on Monetary Policy

Stablecoins are more than just a payment tool — they also play a role in creating "new money." Currently, the U.S. Federal Reserve (Fed) controls monetary policy through the fractional reserve banking system. Traditional banks hold only a fraction of deposits in reserve, lending out the rest, which in turn generates more money in the broader economy.

If stablecoins grow too large, they could undermine this mechanism. When users move funds from banks into stablecoins, the pool of money available for lending shrinks — limiting the Fed's ability to manage monetary conditions. This explains why the Fed has been cautious about granting stablecoin issuers direct access to the central banking system.

Risks and the Road Ahead

Today, stablecoins are primarily issued by private companies — such as Tether (USDT) and Circle (USDC) — backed by cash and government bonds. However, if stablecoins were ever to account for a large share of the total money supply, regulators would need to step in with much tighter controls.

Even so, it's hard to deny that stablecoins have helped extend the reach of the U.S. dollar globally. In many countries with unstable financial systems, stablecoins have become an effective alternative to local currencies. At the same time, the technology has made cross-border transactions faster and far less costly.

The future of stablecoins may hinge on striking the right balance between technological innovation and regulatory oversight. Will central banks launch their own digital currencies (CBDCs) to compete with stablecoins, or will private companies continue to lead the charge? That question remains open.

📌 Will stablecoins spark a financial revolution — or get reined in by regulation? The answer is still ahead of us.