The rise of stablecoins, digital assets designed to maintain a steady value, may soon give way to tokenised deposits—digital representations of traditional bank deposits—according to a Bank of England policymaker. Megan Greene indicated that as commercial banks recognize the risk of losing their deposit base, they will likely shift focus toward developing tokenised deposits, which could become dominant in the next five years.
Greene highlighted that while stablecoins remain popular and continue to play a role in cross-border payments, they face scrutiny over regulatory uncertainty, stability concerns, and their use in illicit activities. She said that stablecoins could undermine monetary policy effectiveness by diverting deposits from banks. This view contrasts with Federal Reserve policymaker Christopher Waller, who described stablecoins as a legitimate and competitive payment innovation that reduces costs and should not be hindered by excessive regulation.
The debate centers around three competing digital payment methods: central bank digital currencies (CBDCs), stablecoins, and tokenised deposits. Greene used an analogy describing CBDCs as the tortoise, stablecoins as the hare, and tokenised deposits as the rhino—suggesting tokenised deposits may ultimately dominate given their potential to bridge traditional banking with digital finance.
Currently, commercial banks have been reluctant to embrace tokenised deposits due to concerns over losing fee income. However, Greene warned these losses are inevitable, and banks will intensify efforts to develop these digital alternatives once they accept this reality.
Meanwhile, stablecoins have gained traction especially for international payments, challenging established financial institutions, which are responding with lobbying efforts against them. Waller emphasized that stablecoins introduce valuable competition in payments, dismissing claims that they are inherently dangerous or problematic.