London — The boom in dollar-backed stablecoins, boosted by US President Donald Trump’s cryptocurrency policies, could suck $1-trillion worth of deposits out of emerging economy banks in the next few years, a report from Standard Chartered estimates.
About 99% of all stablecoins are pegged to the dollar, which economists say effectively makes them dollar-based bank accounts and increasingly attractive in parts of the world prone to currency crises.
Standard Chartered, which has a long history of operating in developing economies, said the desire to avoid savings being wiped out will drive individuals and companies to put their money into stablecoin wallets instead of banks.
“We see the potential for $1-trillion to leave emerging market banks and move into stablecoins in the next three years or so,” it said in the report, which was published on Monday.
While new US cryptocurrency laws aim to mitigate deposit flight by prohibiting US-compliant stablecoin issuers from paying direct yields — the equivalent of an interest rate on a bank account — Standard Chartered said investors in developing economies would still want them.
“Return of capital matters more than return on capital,” the bank said, estimating that current trends point to the use of stablecoins as savings across developing economies jumping to $1.22-trillion by the end of 2028, from about $173bn now.
While a large number in absolute terms, the bank’s analysts stressed that would still represent just 2% of bank deposits in the 16 countries they deem at “high-risk” of this sort of deposit flight.
They include the likes of Egypt, Pakistan, Bangladesh, Sri Lanka, Morocco and Kenya, which have all suffered currency crashes in recent years, but also heavyweight economies such as SA, Turkey, India, China and Brazil.
“Many of them, with the key exception of China, have twin deficits that leave them relatively vulnerable to global risk aversion and sudden sharp currency depreciation,” the report states.
Policymakers in a number of countries have already voiced concerns about stablecoins, including the risk they could facilitate capital flight in the event of a crisis, and also make it harder to stop.
There is little data about who holds stablecoins, but Paolo Ardoino, the CEO of Tether, the world’s biggest issuer of stablecoins, said last year that emerging markets were the source of much its recent growth due the perception of its USDT coin as a dollar-like asset.
Most central banks in emerging markets, are eyeing digital versions of their fiat currencies, though economists point out that they are also likely to attract money away from commercial banks, given that they are effectively government backed.
Reuters
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