How Stablecoins Can Destabilize the Global Banking System

Matt Hougan, Chief Investment Officer of Bitwise Asset Management, has brought to light a crucial debate dividing opinions in the financial sector and the cryptocurrency community. The central issue revolves around an apparently impossible dilemma: offering interest on stablecoins or risking losing geopolitical influence. This deadlock reveals deep tensions about the future of the global monetary architecture.

Banking Risk: Why Institutions Fear Interest-Bearing Stablecoins

Banks express legitimate concerns that interest-paying stablecoins could significantly destabilize the traditional financial system. Their argument is straightforward: if these digital assets begin offering competitive yields, depositors migrating their reserves from conventional bank accounts to stablecoin platforms would pose an existential threat to traditional institutions.

The logic is simple but potentially serious. Bank deposits form the backbone of the business model for traditional financial institutions. When these funds shift to profitable stablecoins, banks lose their primary source of funding, compromising their operational capacity and risking their own stability. This scenario could destabilize not only individual institutions but the entire credit and financing chain that supports the real economy.

The Geopolitical Counterperspective: The Imperative of Stablecoins

On the other hand, the cryptocurrency community and geopolitical analysts raise an equally compelling argument: rejecting interest-bearing stablecoins could relegating the United States to a subordinate position in the new global financial order. According to this view, China would establish financial hegemony through its own digital currency solutions, gaining veto power over international capital flows.

The geopolitical reasoning is strategic. Those who control the infrastructure for settling international transactions hold disproportionate influence over global economic policy. A China dominant in stablecoins would mean that institutions and nations worldwide depend on its benevolence to participate in international transactions. Advocates for US-based interest-bearing stablecoins argue that ceding this ground would be capitulating to an emerging economic rival.

The Regulatory Dilemma: Impacts Beyond Borders

The current debate exposes an inconvenient reality: there is no perfect solution. Regulators in different jurisdictions face conflicting pressures. Allowing interest-paying stablecoins could destabilize domestic banks; banning them could cede geopolitical advantage to international competitors.

The implications go beyond academic discussions. The decisions made in the coming months regarding stablecoin regulation will determine whether the digital dollar maintains its dominance, whether China will emerge as an alternative financial power, or whether a multipolar balance will develop. Stakeholders are closely monitoring each regulatory move, recognizing that the future of global economic power hinges on this debate over stablecoins and their mechanisms of remuneration.