Banks Explore Launching a Stablecoin Linked to G7 Currencies
News Summary
A consortium of major banks, including Bank of America, Goldman Sachs, Deutsche Bank, and Citi, is exploring the issuance of 1:1 reserve-backed digital money linked to fiat currencies of G7 countries, such as the US dollar, Euro, and Japanese Yen. This initiative aims to provide a stable payment asset on public blockchains, leveraging the benefits of digital assets and enhancing market competition while ensuring full regulatory compliance. Their efforts are likely facilitated by the GENIUS Act, a bill signed into law by US President Donald Trump in July 2025, which regulates payment stablecoins. Despite broad praise from crypto advocates, some banks are urging lawmakers to address loopholes in the law that could allow interest-bearing stablecoins, citing concerns about financial stability. Multicoin Capital's co-founder Tushar Jain anticipates consumers might shift bank deposits into higher-yield stablecoins, intensifying competition between tech firms and traditional financial institutions.
Background
Stablecoins are cryptocurrencies designed to maintain a stable value by pegging to a reserve asset like the US dollar or gold, playing a crucial role in the crypto ecosystem by offering a stable medium for transactions. Tether's USDT is the largest by market capitalization, with others like Circle's USDC and Dai also holding significant positions. Traditional banks have historically been cautious about the crypto market, but increasing digital asset adoption and maturing regulatory frameworks are prompting them to explore their own digital currency solutions. The GENIUS Act, signed into law by US President Donald Trump in July 2025, represents the first comprehensive US legislation to regulate payment stablecoins, establishing a foundational regulatory framework for their issuance and operation in the United States. However, the law's full implementation is still pending, expected to take effect approximately 15 months from now, or 120 days after the US Treasury and Federal Reserve finalize related regulations.
In-Depth AI Insights
Why are major banks exploring G7-linked stablecoins now, rather than entering the existing stablecoin market earlier? - This move by banks is not merely to replicate existing stablecoins but to integrate the benefits of public blockchains with the regulated traditional financial system, offering an “institutional-grade” digital currency. - It reflects a strategic positioning for the future of digital currencies as payment infrastructure, aiming to avoid marginalization by tech companies and crypto-native firms in the digital transformation of financial services. - It could be a response to increasing regulatory clarity, such as the GENIUS Act, where banks may perceive higher legitimacy and security for stablecoin issuance under a defined framework, garnering greater institutional trust. - The objective might be to leverage their extensive customer base and existing compliance infrastructure to assert control over specific segments of the digital currency market, particularly in cross-border payments and interbank settlements. What do the “loopholes” allowing interest-bearing stablecoins under the GENIUS Act mean for banks and financial stability? - The allowance of interest-bearing stablecoins could lead to a significant outflow of bank deposits, as consumers might be attracted to higher-yield stablecoins, thereby eroding banks' deposit base and lending capacity. - This would dramatically shift the competitive landscape for traditional financial institutions, pressuring banks to offer more competitive products or accelerate their innovation in the digital asset space. - If interest-bearing stablecoins grow large without adequate regulation or reserve requirements, they could introduce new systemic risks, especially during market volatility, due to potential “runs” similar to money market funds. - The stability of the traditional financial system could be challenged, placing immense pressure on regulators to balance innovation with risk, potentially leading to stricter capital and liquidity requirements for both banks and stablecoin issuers. How might the Trump administration's GENIUS Act shape the future landscape of digital currencies in the US and globally? - The GENIUS Act positions the US as a leader in global digital currency regulation, potentially prompting other G7 nations to follow suit and establish more harmonized international regulatory standards. - The bill's passage signals increased US acceptance of digital assets, potentially accelerating the US dollar's status as a reserve currency in the digital world, especially through regulated USD stablecoins. - This act could foster the growth of the stablecoin market within the US, attracting more institutional participation, but it may also lead to market consolidation favoring larger entities that can meet stringent regulatory demands. - Given that the implementation details are still to be finalized by the Federal Reserve and Treasury, the ultimate impact will depend on how these specifics balance financial stability, consumer protection, and market innovation.