Banks are contemplating a role for themselves in stablecoins if pending US legislation helps take cryptocurrencies and their gateway products mainstream. Companies owned by Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. have had discussed jointly issued coins, according to the Wall Street Journal. European lenders such as Banco Santander SA are also potentially interested in such projects.
It makes sense for banks to be involved in products that could compete directly with their own payment services and deposits. It’s also sensible for them to work together to shield them individually from the reputational risk of any coin they issue being used to fund crime or terror. They still need better rules and defenses around that possibility as well as confidence that the technology will be reliable.
President Donald Trump along with his family and friends are much more open to the possibilities of cryptocurrencies than previous administrations, to put it mildly. Congress is working on legislation for cryptocurrencies and stablecoins — the Genius Act and the Stable Act — to give them a practical foundation.
JPMorgan already has its own coin, but that has been limited to strictly internal uses to make cross-border transfers quickly and efficiently for its own clients. Big lenders will likely prefer joint projects rather than putting their own name to a public coin. Banks have previously worked together on new technologies to share both the costs and the risks while helping to create the level of trust that would encourage people to adopt them. Most recently, several lenders backed Zelle, an electronic instant payments service for consumers now offered by more than 2,000 US lenders. Zelle’s operating company is one of the firms involved in the joint stablecoin talks, the Wall Street Journal reported.
Stablecoins could prove to be a useful form of international payments in the future as well as a place to store money that isn’t a bank. Their main function today is as a staging place for moving money in and out of other kinds of crypto assets. The coins are meant to hold their value in dollar terms and be backed by cash-like assets such as Treasuries and government bills, money-market fund shares or bank deposits.
To have a chance of becoming broadly popular, these coins ought to become more like money-market funds, which would mean passing much of the interest they earn on their assets through to the holders of the coins. Yield-bearing stablecoins have grown rapidly in recent months and pose a growing threat to the existing interest-free versions that dominate the market, according to recent analysis from Bloomberg News.
