Stablecoins are becoming regulated payment instruments with the potential to compete directly with the customer deposit—one of banking’s most valuable franchises.
Stablecoins are no longer merely a crypto-market convenience. They are becoming regulated payment instruments with the potential to compete directly with one of banking’s most valuable franchises: the customer deposit. The contest will determine not only how money moves, but who funds credit, earns the economics of transaction balances and controls the next generation of financial infrastructure.
For more than a century, commercial banks have occupied an unusually privileged position in the monetary system. Households receive salaries into bank accounts and companies hold working capital at banks. Those deposits are used to make payments while simultaneously providing banks with funding that supports lending. Stablecoins challenge that arrangement in a deceptively simple way: a customer can convert bank money into a digital token designed to remain worth one unit of currency and move that token across blockchain networks around the clock.
Stablecoins Have Moved From the Periphery to the Policy Mainstream
The scale of stablecoins remains small compared with global banking, but the trajectory has changed. The BIS Annual Economic Report 2026 describes a market in the hundreds of billions of dollars, overwhelmingly linked to the US dollar, with transaction volumes in the trillions. It also cautions that a large share of reported activity reflects crypto trading and transfers rather than real-economy payments. BIS Annual Economic Report 2026
The United States enacted the GENIUS Act on 18 July 2025, creating a federal framework for payment stablecoins and requiring permitted issuers to maintain one-to-one reserve backing with eligible liquid assets. GENIUS Act
Stablecoins are therefore entering a new phase. The debate is no longer whether regulated stablecoins can exist, but how extensively they will compete with bank money once the regulatory and distribution infrastructure matures.
A Stablecoin and a Bank Deposit May Both Be Worth $1—But They Are Not the Same Money
A bank deposit is a liability of a regulated bank. Banks perform maturity and liquidity transformation: they use deposits and other funding to support loans, securities and other assets. Stablecoin issuers operate differently. Under reserve-backed models, the issuer receives money and holds corresponding reserves in cash, short-term government debt, qualifying bank deposits or other permitted liquid assets.
The GENIUS Act requires identifiable one-to-one reserves and prohibits a permitted payment-stablecoin issuer from paying holders interest solely for holding the token. The Federal Reserve notes that authorised payment stablecoins are intended to be backed by relatively safe assets and function as payment instruments rather than credit-creating deposits. GENIUS Act; Federal Reserve
This difference is central to the competition. Bank deposits are deeply embedded in credit creation; stablecoins are deeply compatible with programmable payment networks.
Stablecoins Compete Where Traditional Deposits Are Weakest
A Federal Reserve analysis published in March 2026 showed how stablecoins could shorten some cross-border payment chains. Instead of funds moving through several correspondent institutions, a sender or bank can acquire a payment stablecoin and transfer it to a recipient or institution with access to the same infrastructure. Foreign exchange, compliance, liquidity and on/off-ramp costs remain, but the number of intermediaries can fall. Federal Reserve, March 2026
Stablecoins can operate continuously, interact with smart contracts, settle alongside tokenised securities and be embedded directly into software. The more economic activity becomes machine-to-machine, tokenised and continuously settled, the more valuable those characteristics become.
Deposits Still Possess Something Stablecoins Do Not: Elasticity
Modern economies need more than efficient movement of existing money; they need credit. The BIS argues that the two-tier monetary system derives part of its strength from the elasticity of commercial-bank money and central-bank liquidity. Banks can extend a loan and create a corresponding deposit, while central banks provide settlement liquidity to the banking system. BIS Annual Economic Report 2026
A fully reserve-backed stablecoin cannot replicate this function in the same way because issuance generally requires reserve assets to exist first. Stablecoins can become systemically important without replacing banks, but if deposits migrate toward stablecoins, banks may need to fund lending from more expensive or less stable sources.
Deposit Displacement Is the Real Strategic Risk
The key question for banks is whether customers merely use stablecoins for payments or hold material balances in them instead of deposits. Federal Reserve research emphasises that the impact depends on where issuers place reserves. If reserves are held as bank deposits, funds may remain inside the banking system but become concentrated in large institutional accounts. If reserves shift into Treasury securities, funding can leave the banking system more directly. Federal Reserve, May 2026; Federal Reserve, March 2026
Ten million customers each holding a modest balance at many banks represent a different funding profile from a stablecoin issuer maintaining a multibillion-dollar reserve account with a small number of institutions. The aggregate amount may look similar; the concentration and liquidity characteristics do not.
The Battle Is Also About Who Earns the Interest
A stablecoin issuer can receive cash, issue a token at par and invest eligible reserves in short-term government securities or other permitted assets. If the token itself pays no interest, reserve income becomes a potentially important revenue source for the issuer and its distribution partners.
The GENIUS Act prohibits direct interest payments by permitted issuers, while BIS research published in June 2026 highlights how remuneration offered through exchanges and other intermediaries could still influence whether stablecoins behave more like deposits or money-market products. Federal Reserve; BIS Bulletin 125
The competitive question may therefore become whether users value yield more than mobility, programmability and continuous settlement.
Regulation Is Making Stablecoins More Bank-Like
The EU’s MiCA framework requires authorisation and imposes governance, reserve and financial-resilience requirements for relevant token issuers. In the UK, the Bank of England’s June 2026 policy for systemic sterling stablecoins moved to a framework allowing up to 70% of backing assets in short-term UK government debt, with the remainder in central-bank deposits, alongside a planned liquidity backstop for systemic issuers. EBA — MiCA; Bank of England, June 2026
The more stablecoins grow, the more policymakers are likely to require them to resemble regulated monetary institutions. That strengthens trust but may weaken some of the economic freedoms that made early stablecoins attractive.
Banks Are Unlikely to Stand Still
Federal Reserve research examining previous episodes of financial disintermediation argues that banks typically respond by changing pricing, products and strategy rather than passively accepting deposit losses. Federal Reserve, May 2026
Banks can raise deposit rates, improve instant payments, issue regulated stablecoins where permitted, provide custody and liquidity services, and—perhaps most importantly—tokenise deposits themselves.
Tokenised Deposits Could Become Banking’s Answer
A tokenised deposit seeks to deliver many of the technical features associated with stablecoins while keeping the customer’s claim within the commercial banking system. The Eurosystem’s 2026 payments strategy says tokenised deposits appear well placed to deliver many of the functional benefits associated with stablecoins for tokenised settlement. ECB payments strategy
The BIS similarly argues for monetary architectures that preserve the role of central-bank money while incorporating tokenised commercial-bank deposits and other regulated instruments. BIS Annual Economic Report 2026
If tokenised deposits become interoperable and scalable, the contest may become less about blockchain versus banking and more about which legal claim circulates on programmable infrastructure.
Stablecoins May Be Most Disruptive Outside Rich Domestic Banking Markets
In economies where local currencies are volatile, access to dollars is restricted or cross-border payments are expensive, dollar-linked stablecoins can offer a transferable digital dollar-like asset without a conventional US bank account. BIS research published in July 2026 describes stablecoins as a new channel for dollar liquidity in emerging market and developing economies and examines the implications of “stablecoin dollarisation”. BIS Working Paper 1370
The competitive threat is therefore not uniform. In developed markets, stablecoins may primarily challenge payment infrastructure and transaction balances. In more fragile monetary systems, they may challenge domestic currency use itself.
The Treasury Market Could Become an Unexpected Winner
Large stablecoin issuers increasingly hold short-dated US government securities and related instruments. BIS analysis notes the growing interaction between stablecoin reserve portfolios and safe-asset markets. BIS Annual Economic Report 2026
The transmission mechanism is straightforward: a customer shifts money from a bank deposit into a stablecoin, and the issuer invests the reserve in Treasury bills. Funding that previously supported a bank balance sheet may now support government borrowing. Banks can replace funding, but often at a higher cost, which can narrow lending margins or raise credit prices.
Stablecoins Have Their Own Run Problem
Reserve backing does not eliminate liquidity risk. Reserve quality, redemption design, operational resilience and confidence all matter. The BIS warns that large redemptions can transmit stress into money markets, while the Bank of England’s planned liquidity facility for systemic stablecoin issuers explicitly reflects the need for a backstop during periods of severe outflows. BIS Annual Economic Report 2026; Bank of England
Digital infrastructure can accelerate both confidence and panic. Stablecoins may remove some forms of bank balance-sheet risk, but they introduce others.
Conclusion: The Real Battle Is for the Monetary Balance Sheet
Stablecoins do not need to replace deposits to transform banking. They only need to become credible enough that households, companies and financial institutions have a genuine alternative when deciding where to keep transactional liquidity.
The likely end state is coexistence: central-bank money, bank deposits, tokenised deposits and properly regulated stablecoins operating across increasingly programmable infrastructure. The Eurosystem’s current strategy explicitly contemplates central-bank money at the core, complemented by regulated private settlement assets such as tokenised deposits and stablecoins. ECB, March 2026
The decisive question is therefore not what consumers call their digital money, but whose liability they hold. If value remains a bank deposit, the bank retains the funding relationship. If it becomes a non-bank stablecoin backed largely by government securities, economics shift toward the issuer and sovereign debt markets. If banks successfully tokenise deposits, they may capture much of the technological upside without surrendering the deposit franchise. The future of money will be defined not only by how fast value moves, but by where value rests between transactions.
References
1. BIS — Anchoring trust in money: innovation beyond stablecoins, Annual Economic Report 2026
2. Federal Reserve — Banks in the Age of Stablecoins, May 2026
3. Federal Reserve — Payment Stablecoins and Cross Border Payments, March 2026
4. U.S. Congress — GENIUS Act, Public Law 119-27
5. European Banking Authority — Asset-referenced and e-money tokens under MiCA
6. European Central Bank — Eurosystem comprehensive payments strategy
7. European Central Bank — The Eurosystem’s comprehensive payments strategy
8. Bank of England — Sterling-denominated systemic stablecoins, June 2026
9. Bank of England — June 2026 systemic stablecoin policy update
10. BIS — Dollarisation and monetary control: lessons for the rise of stablecoins, July 2026
11. BIS — Stablecoin remuneration on centralised exchanges, June 2026
