Alan Koenigsberg
Sep 28, 2025
We’ve all heard the relentless buzz over artificial intelligence (AI) these past few years and how it is poised to change just about everything in our lives. Frankly, I’m exhausted by the hype. That’s why it’s a nice change that the banking and finance world is currently focused on the potential of digital currencies, especially stablecoins and Central Bank Digital Currencies (CBDCs). The financial services industry has weathered countless technological disruptions, from the advent of electronic banking to the rise of fintech challengers. Yet none may prove as fundamentally transformative – or potentially destabilising – as the emergence of digital currencies. While artificial intelligence dominates headlines with promises of operational efficiency, a quieter revolution is brewing in the realm of money itself: the rapid adoption of stablecoins and the looming arrival of Central Bank Digital Currencies (CBDCs).
According to J.P. Morgan Global Research, “the US dollar-denominated stablecoin market, which makes up around 99% of the global stablecoin market, has grown to $225 billion, accounting for roughly 7% of the broader $3 trillion crypto ecosystem.” The numbers tell a compelling story of unprecedented growth. According to Forbes, Tether (USDT) alone commands a market capitalisation exceeding $140 billion, while USD Coin (USDC) follows at approximately $35 billion. This rapid expansion reflects not merely speculative interest, but genuine utility in cross-border payments, treasury management, and decentralised finance applications.
Yet beneath this impressive growth lies a fundamental question that the industry has been reluctant to address directly: Are these digital currencies genuine solutions to persistent banking challenges, or are they sophisticated instruments that could ultimately undermine the very financial stability they purport to enhance?
The advantages of stablecoins and CBDCs extend far beyond theoretical benefits. For cross-border transactions, traditional correspondent banking networks can take 3-5 business days and incur fees ranging from 2-7% of transaction value. Stablecoins, operating on blockchain infrastructure, can settle these same transactions in minutes with fees often below 0.1%.
JPMorgan’s blockchain platform has processed over $1.5 trillion since its launch a few years ago, and the bank estimates that Kinexys now handles roughly $2 billion per day.
Unlike traditional banking infrastructure that operates within business hours and is subject to weekend and holiday delays, stablecoin networks operate continuously. This capability is particularly valuable for global enterprises managing treasury operations across multiple time zones. Stablecoin adoption can reduce a corporates global cash management overhead by 40% or more by simply eliminating timing arbitrage and improving working capital efficiency.
CBDCs and stablecoins enable programmable functionality that traditional currencies cannot match. Smart contracts can automate compliance checks, implement conditional payments, and create sophisticated escrow arrangements without intermediary involvement. XRP News reported the European Central Bank’s digital euro pilot program ultimately will demonstrate automated tax collection, real-time regulatory reporting, and instant trade finance settlement, capabilities that could revolutionise commercial banking operations.
Digital currencies offer pathways to financial inclusion that traditional banking infrastructures have not served economically well.
Stablecoins are revolutionising financial inclusion by providing a stable and secure means for storing value, which is vital for individuals in underserved markets and communities. They enable participation in the global financial system without traditional bank accounts. Accessibility is vital for those excluded from traditional financial institution business, bridging the gap and offering practical solutions to those left behind. They could play a key role in democratising financial services and empowering individuals and small businesses to take control of their financial futures.
With all the promise of stablecoins, there is a flip side. The Bank Policy Institute‘s analysis presents a stark warning: widespread adoption of yield-bearing stablecoins could trigger up to $6.6 trillion in deposit outflows from US banks. This figure represents more than 40% of total US bank deposits, potentially destabilising the funding model that has underpinned American banking for generations.
Consider the implications: if corporations systematically shift working capital from traditional deposits to tokenised assets, banks could lose their primary funding source for lending operations. The resulting credit crunch could dwarf the 2008 financial crisis in scope and severity. Regional banks, which rely more heavily on deposit funding than their global counterparts, face existential threats under such scenarios. That said, technology evolution, pilot results, and central bank participation with the private sector will continue to evolve.
The regulatory landscape for digital currencies resembles a patchwork quilt of competing jurisdictions and conflicting requirements. The recently passed GENIUS Act in the US provides a framework for stablecoin legitimacy, signalling federal acceptance of regulated digital currencies. However, implementation remains fragmented at the state level.
European regulators maintain a markedly different perspective. The Atlantic Council reports that European policymakers view stablecoins with deep skepticism, emphasising systemic risks and potential threats to monetary sovereignty. The EU’s Markets in Crypto-Assets (MiCA) regulation imposes stringent requirements on stablecoin issuers, including mandatory asset segregation and strict redemption guarantees that many current issuers cannot meet.
For global financial institutions, this regulatory divergence creates operational nightmares. A stablecoin structure compliant with US regulations may be deemed impermissible in the EU, forcing banks to maintain parallel systems and fragmented liquidity pools. The resulting compliance costs could negate the operational efficiencies that make digital currencies attractive in the first place.
The Bank for International Settlements has raised perhaps the most critical challenge facing stablecoins: their failure to meet the three essential criteria of money: singleness, elasticity, and integrity.
Singleness requires that units of currency be interchangeable and universally accepted at par value. However, different stablecoins trade at slight premiums or discounts to their pegged values, and redemption mechanisms vary significantly between issuers. USDT, for instance, has occasionally traded below $1.00 during periods of market stress, raising questions about its reliability as a unit of account.
Elasticity demands that money supply can expand and contract in response to economic conditions. Central banks possess this capability through monetary policy tools, but stablecoin issuers operate under rigid algorithmic rules or commercial incentives that may not align with broader economic needs.
During the March 2020 market turmoil, stablecoin supply contracted when liquidity was most needed, exacerbating market stress. This phenomenon was driven by a combination of factors, including investor behaviour during the COVID-19 pandemic, which led to a significant demand for cash and a sharp decline in treasury prices. As a result, stablecoins, which are designed to maintain a consistent value relative to fiat currencies, struggled to meet the liquidity needs of investors, leading to a contraction in supply during a time of heightened liquidity demand.
Integrity requires that the currency maintain its value and function under adverse conditions. Recent history provides sobering examples of stablecoin failures: TerraUSD’s collapse eliminated $60 billion in value within days, while even established stablecoins have faced redemption pressures during market stress. Traditional banking deposits benefit from government insurance and central bank backstops that stablecoins entirely lack.
Stablecoin ecosystems suffer from dangerous concentration risks that traditional banking deliberately avoids. Circle, the issuer of USDC, holds approximately 80% of its reserves in short-term US Treasury securities, creating unprecedented concentration in a single asset class. During periods of treasury market stress, this concentration could amplify rather than dampen volatility.
Moreover, stablecoin issuers lack access to central bank discount windows and lender-of-last-resort facilities that provide crucial stability during crisis periods. A prominent investment analysis firm recently highlighted that stablecoin issuers rely almost entirely on market liquidity, making them vulnerable to runs that could rapidly spiral into systemic events. The next major financial crisis will provide the ultimate stress test for these assumptions.
Current market dynamics reveal both the promise and peril of digital currency adoption. Currently issued mostly in US dollars, stablecoin circulation has doubled over the past 18 months but still facilitates only about $30 billion of transactions daily – less than 1% of global money flows.
Corporate adoption follows a similar pattern. While over 50% of Fortune 500 companies are pursuing crypto programs, including stablecoin, a recent survey by Deloitte found that only 3% of corporations use stablecoins for routine treasury operations, despite widespread awareness and pilot programs.
The institutional infrastructure is rapidly evolving. Traditional custody banks like State Street and BNY Mellon have launched digital asset services, lending credibility to the sector while highlighting the infrastructure gaps that remain.
Given these competing dynamics, how should banks and corporations approach digital currency strategies? The answer lies in recognising that stablecoins and CBDCs represent tactical utilities rather than foundational replacements for traditional currency systems.
Successful digital currency adoption requires sophisticated risk management frameworks that account for liquidity risk, operational risk, and regulatory uncertainty. Leading institutions are implementing tiered approaches: using stablecoins for specific use cases like cross-border payments while maintaining traditional banking relationships for core funding and liquidity management.
Global financial institutions must develop region-specific strategies that account for regulatory divergence. This may require maintaining parallel systems and accepting higher operational complexity in exchange for regulatory compliance and market access.
Rather than concentrating digital currency exposure with single providers, sophisticated institutions are diversifying across multiple stablecoin issuers, blockchain networks, and custody solutions. This approach mirrors traditional banking principles of diversification while adapting to the unique risks of digital assets.
As the financial services industry stands at this crossroads, we must confront an uncomfortable reality: the digital currency revolution is not a distant possibility. It is happening now, with or without traditional banking’s participation. The question is no longer whether digital currencies will achieve mainstream adoption, but whether existing financial institutions will control this transition or become its casualties.
The data suggests a troubling paradox. While stablecoins offer genuine operational improvements and cost savings, their widespread adoption could trigger the largest transfer of financial power since the creation of central banking. We are witnessing the emergence of privately issued currencies that could eventually rival or replace government-issued money, controlled by technology companies with no regulatory oversight or public accountability.
Consider this: if the $6.6 trillion deposit flight scenario materialises, it would not merely challenge bank funding models, it would fundamentally alter the relationship between citizens and their monetary system. Instead of money issued by democratically accountable central banks, we would rely on currencies controlled by private corporations whose primary obligation is to shareholders, not the public interest.
The most provocative possibility is that we are sleepwalking into a monetary future where the very definition of money is determined not by governments or central banks, but by the technological capabilities and commercial interests of private entities. The efficiency gains and operational improvements that make stablecoins attractive today may be the very mechanisms that transfer monetary sovereignty from democratic institutions to corporate boardrooms tomorrow.
The next financial crisis will provide the ultimate test of these competing visions. Will stablecoins prove to be resilient infrastructure that enhances financial stability, or will they amplify systemic risks beyond anything we have previously experienced? The institutions that answer this question correctly will shape the future of money itself. Those who answer incorrectly may discover that the disruption they sought to harness has ultimately consumed them.
The choice facing financial leaders today is not between innovation and stability, it is between controlled evolution and chaotic revolution. The window for shaping this transformation is rapidly closing. The question is whether traditional financial institutions have the courage to lead this change or will merely react to it.
If you and your team are wrestling with what stablecoins and CBDCs really mean for liquidity, risk, and client strategy, the time for passive observation has ended. Contact Koenigsberg Insights to develop frameworks that position your institution not just to survive the digital currency revolution, but to lead it.
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