The impact of stablecoins on banks' balance sheets in the EU

Stablecoins, a type of digital currency typically anchored to fiat money (i.e. £, $ €), are emerging as a disruptive force within the financial sector. Given that cross-border payments are projected to reach $182 trillion p.a., financial institutions are looking for ways to effect such transactions faster and cheaper. Three of Japan’s biggest banks have announced they are to use SWIFT and a blockchain-based framework for instant international payments using stablecoins tied to various currencies. The aim is to enable transactions to occur in under a second, significantly reducing costs and time compared to the traditional SWIFT system, which can take hours. By leveraging existing SWIFT infrastructure, the banks can avoid substantial new investments and, because sending and receiving banks must support stablecoins, this ought to act as a stimulus for broader adoption of blockchain technology. However, stablecoins ascent also brings challenges, particularly for conventional banks. In th…