TLDR
- Stablecoins could drive bank evolution rather than cause $1 trillion outflows.
- Local-currency stablecoins like cNGN and IDRX are gaining adoption in EMs.
- Regulatory clarity in markets like Nigeria may support stablecoin growth.
- Stablecoins provide solutions for inflation and capital controls in EMs.
Experts have raised concerns over a recent report from Standard Chartered that forecasts a $1 trillion outflow from emerging market (EM) banks over the next three years due to stablecoins. The bank’s research suggests that stablecoins could cause a significant migration of deposits, particularly from countries like Egypt, Pakistan, Bangladesh, and Sri Lanka. However, industry experts argue that this shift may not lead to a crisis but instead to a gradual evolution of financial systems.
Experts Question $1 Trillion Outflow Forecast
Standard Chartered’s research points to a potential $1 trillion shift in deposits from EM banks as people move their funds into stablecoins. The bank claims that this trend would be driven by stablecoins offering access to USD-based accounts without the need for traditional banking intermediaries. Despite the forecast, experts like Dominic Schwenter, COO of Lisk, believe that the rise of local-currency stablecoins could offset some of these risks.
Schwenter explained that stablecoins in local currencies, such as Nigeria’s cNGN and Indonesia’s IDRX, are becoming more common. These stablecoins offer an alternative to the US dollar-backed stablecoins, which have gained attention in recent years. Schwenter emphasized that the real shift in EMs is towards local-currency stablecoins, which could maintain or even strengthen ties with traditional banking systems rather than replacing them entirely.
Stablecoins Could Drive Evolution, Not Replacement
Dominic Schwenter argued that the growth of stablecoins would not necessarily eliminate the need for banks. He highlighted that most users in emerging markets still prefer custodial services, such as banks or fintech companies, for storing their funds. He pointed out that while stablecoins could reduce reliance on traditional banks, they are more likely to force banks to evolve in response to new digital financial tools, rather than completely disintermediate them.
According to Schwenter, this evolution of banking systems would require institutions to adapt to new technologies and offer better user experiences. Banks that fail to innovate may face challenges, but those that embrace blockchain and digital currencies will likely thrive alongside the stablecoin trend. Therefore, stablecoins may disrupt existing institutions but not fully replace them, leading to a more inclusive and digitally integrated financial system.
Stablecoins May Strengthen the Dollar’s Global Role
Robert Schmitt, co-founder of Cork Protocol, raised another perspective, arguing that stablecoins could expand the dominance of the US dollar globally, particularly in emerging markets. Schmitt compared the rise of stablecoins to a “second Bretton Woods,” a global financial restructuring event that could shift power to individuals while reducing the control of state-backed currencies.
Schmitt explained that stablecoins could make it easier for people in EMs to settle transactions using the US dollar, even without direct access to traditional banking systems. This shift could further solidify the dollar’s role in global commerce. He suggested that while governments in EMs may feel pressure, individuals could benefit from having more financial control through stablecoins, bypassing the traditional banking system and capital controls.
Regulatory Responses and Market Demand
Both Schwenter and Schmitt agreed that regulation would play a crucial role in shaping the future of stablecoins. However, their views on regulatory responses differ. Schmitt warned that governments, especially those with authoritarian tendencies, might impose stricter regulations on stablecoins to protect their control over national monetary systems.
He mentioned that regulatory frameworks like MiCA (Markets in Crypto-Assets) could emerge in response to the increasing use of stablecoins, with a focus on restricting the decentralized nature of the technology.
On the other hand, Schwenter noted that many emerging markets already have clear regulatory frameworks for digital assets. Countries such as Indonesia, Nigeria, and Malaysia have made significant progress in creating regulatory clarity, which may help support the stablecoin trend. Schwenter also pointed out that regulations in markets like the US, through initiatives like the GENIUS Act, could prompt other countries to catch up, making stablecoins a more widely accepted financial tool.
Stablecoins Fill Real Needs in Emerging Markets
Experts also agreed that the primary driver behind the adoption of stablecoins in emerging markets is necessity. In countries with volatile currencies or struggling financial systems, stablecoins provide an alternative that helps people protect their wealth from inflation or capital controls. Schwenter noted that stablecoins have already proven their utility in these markets, solving real problems related to day-to-day banking needs.
Schmitt added that this trend is particularly evident in regions like Africa and Asia, where Web3 technologies, including stablecoins, have found a solid product-market fit. These technologies are not just speculative investments; they offer practical solutions for millions of people who lack access to traditional banking services. As such, emerging markets may set the global standard for blockchain’s real-world utility in the near future.
