Stablecoin Demand May Soon Wane, BoE's Greene Warns

Central Bank Digital Currencies May Replace Stablecoins

DUBROVNIK, Croatia - The popularity of stablecoins, a type of cryptocurrency designed to maintain a stable value, could soon wane in favor of tokenized deposits, or digital versions of traditional bank deposits, according to Bank of England policymaker Megan Greene.

Greene made this prediction at a conference in Dubrovnik, Croatia, where she noted that stablecoins have grown in popularity in recent years and are still expected to rise by some after issuance leveled off in recent months. However, Greene believes that tokenized deposits may be the ultimate winner, as commercial banks recognize that they will otherwise lose traditional bank deposits.

Greene argued that there is a market for central bank digital currencies, stablecoins, and digital deposits. However, she noted that digital deposits have not yet taken off because commercial banks are hesitant to lose the fees associated with traditional bank deposits. Greene believes that when commercial banks realize they will lose these fees anyway, they will invest more in developing digital deposits.

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In contrast to Greene's views, U.S. Federal Reserve policymaker Christopher Waller defended stablecoins, arguing that they are a financial innovation that may reduce costs and should not be quashed by excessive regulation. Waller noted that stablecoins are simply a payment instrument and bring competition into the payments world.

Greene also expressed concerns about stablecoins, citing their lack of stability, regulatory issues, and potential use for illicit purposes. Additionally, she noted that stablecoins take deposits away from commercial banks, which may reduce the effectiveness of monetary policy.

Greene compared the future prospects of stablecoins, central bank digital currencies, and tokenized deposits to a race between a tortoise, a hare, and a rhino. According to Greene, the tortoise represents central bank digital currencies, the hare represents stablecoins, and the rhino represents tokenized deposits. Greene believes that all three will eventually coexist, but that tokenized deposits will ultimately prevail.

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