Stablecoins could suck $1 trillion from EM banks in next three years, Standard Chartered estimates

Audio By Carbonatix

Enlarge

By Marc Jones

LONDON (Reuters) -The boom in U.S. dollar-backed stablecoins, helped by Donald Trump’s crypto 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, a bank renowned for 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,” the bank’s report published on Monday said.

While new U.S. crypto laws aim to mitigate deposit flight by prohibiting U.S.-compliant stablecoin issuers from paying direct yields – the equivalent of an interest rate on a bank account – Standard Chartered said that developing world populations will 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 around $173 billion now.

While a large number in absolute terms, its analysts stressed that would still represent just 2% of bank deposits in the 16 countries they deem at “high-risk” of this kind of deposit flight. 

They include the likes of Egypt, Pakistan, Bangladesh and Sri Lanka, Morocco and Kenya which have all suffered currency crashes in recent years, but also heavyweight economies such as Turkey, India, China, Brazil, South Africa.

“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 said.

Policymakers in a number of countries have already voiced concerns about stablecoins, including the risk they could facilitate capital flight if a crisis breaks out, and also make it harder to stop.

There is little data about who holds stablecoins but the CEO of the world’s largest stablecoin issuer Tether 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 emerging market central banks, meanwhile, are eyeing digital versions of their fiat currencies, although economists point out that they too are likely to attract money away from commercial banks given they are effectively government backed.

(Reporting by Marc Jones. Editing by Sharon Singleton and Mark Potter)