A recent report by Standard Chartered has warned that stablecoins could potentially drain up to $1 trillion from emerging market (EM) banks over the next three years. This is because stablecoins offer consumers a USD-based account without the need for traditional intermediaries, leading to a migration of banking functions to the non-bank digital sector. The report identified Egypt, Pakistan, Bangladesh, and Sri Lanka as the most exposed to this potential outflow.
However, not everyone agrees with this assessment. Dominic Schwenter, COO at Lisk, believes that the rise of local-currency stablecoins across emerging markets could mitigate the impact of this outflow. He cites examples such as the cNGN in Nigeria and IDRX in Indonesia, and notes that most users still prefer some form of custodial trust, which could limit the extent of disintermediation.
Robert Schmitt, co-founder of Cork Protocol, takes a different view, suggesting that the adoption of stablecoins could signal a “second Bretton Woods” moment, where the global financial system is reorganized around the US dollar. He believes that stablecoins will extend dollar hegemony beyond traditional financial channels, bringing entire economies into the digital dollar system.
The implications of this trend are far-reaching, with some experts arguing that it could lead to a redefinition of monetary geography, where digital dollars, local stablecoins, and tokenized assets coexist in a fragmented but connected financial ecosystem. Others warn that authoritarian-leaning governments may respond to stablecoin adoption with restrictive frameworks, while regulatory clarity in emerging markets is already higher than in some advanced economies.
Ultimately, the rise of stablecoins is likely to reshape the structure of financial institutions themselves, with individuals increasingly able to bypass national banking systems entirely. The question of who controls this new financial landscape – the banks, the blockchains, or the billions of individuals walking between them – remains to be seen. As Schmitt notes, “every Bretton Woods moment comes with winners and losers,” and this time, the ledger might be on-chain.
The potential impact of stablecoins on emerging markets is significant, with some experts arguing that it could provide a lifeline for citizens in countries with unstable currencies and capital controls. However, it also threatens central banks’ control over monetary policy, and could lead to a loss of deposits for traditional banks. The next three years will be crucial in determining the trajectory of this trend, and whether it will lead to a fundamental shift in the global financial system.