While digital assets were seen primarily as a technology story or a speculative market, stablecoins have transformed the financial landscape. This is because they have bridged the gap between traditional fiat currencies and the programmable, borderless nature of blockchain infrastructure.
Unlike cryptocurrencies, stablecoins are designed to maintain a stable value, typically against the US dollar, and are commonly backed by high-quality liquid assets such as short-term US Treasuries and bank deposits. The major consideration is how they are being integrated into the existing financial architecture.
This integration differs across the US, the EU and the UK, depending on whether public or private forms of digital money are favoured. The US is moving toward an industry-led model that allows private stablecoins to scale, while reinforcing demand for US Treasuries and extending the dollar’s reach. The EU is taking a different approach by seeking to anchor digital finance in central bank money, notably through the digital euro, while having moved early to establish a clear regulatory framework for privately issued digital forms of money. The UK sits between the two, combining work on central bank digital money infrastructure with the development of a comprehensive regulatory framework for private forms of digital money.
This divergence matters because stablecoins directly connect private money, public debt and global liquidity. Differing approaches to private forms of digital money may affect adoption and fragment the global financial architecture, dividing it between privately and publicly controlled infrastructures. Different models will therefore lead to different outcomes for bank deposits, capital flows and monetary policy transmission.
“Stablecoins are forcing regulators to redraw the boundary between private money and public trust. The question is no longer only how digital assets are supervised but who controls the next layer of monetary infrastructure — the central banks or private issuers?”
Eric Cloutier Group Head of Banking Regulations / Head of Global FS RegCentre, Forvis Mazars in the UK
The stablecoin market is dominated by dollar-based products. More than 98% of issuance is pegged to the US dollar.[1] Denomination matters because stablecoins are not just digital cash instruments; they also operate as a distribution mechanism for dollar assets.
Tokenisation makes US debt more accessible 24/7, effectively creating new pools of demand for US Treasury bills and Treasuries. To maintain their pegs, major stablecoin issuers hold large reserves, predominantly in short-dated US Treasuries and repo agreements. This turns stablecoins into a digitally native distribution channel for US government debt. As stablecoins scale, they create additional structural demand for US Treasuries.
Projections suggest that if the stablecoin market penetration continues at its current trajectory, demand for Treasuries from this sector could reach $2tn by 2030[2]. Such demand structurally reinforces the ‘exorbitant privilege’ of the US dollar by providing a reliable, politically agnostic funding mechanism for US debt. In effect, demand for dollar-backed stablecoins becomes a support mechanism for US sovereign financing. In the age of the mature debt cycle, this move is a genuine game changer.
“Stablecoins could extend the reach of the dollar through private digital infrastructure. In doing so, they may support US sovereign financing, reshape capital flows and affect monetary sovereignty in jurisdictions that cannot offer credible digital alternatives.”
George Lagarias Chief Economist, Forvis Mazars in the UK
With the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, the US is enabling an industry-led stablecoin framework anchored in high-quality liquid reserves. At one level, this is a regulatory response. At another level, it reflects recognition that stablecoins are becoming part of the monetary system. The GENIUS framework embodies America’s embrace of private forms of digital money, which has consequential macroeconomic implications in the medium term.
To know more about the regulatory framework in the US, read our Insights on the Office of the Comptroller of the Currency's (OCC) Proposed Stablecoin Framework and our latest update on the GENIUS Act.
The US model for stablecoins can bring multiple advantages:
While increased demand for US Treasuries comes with the above advantages, it also risks driving up the value of the dollar. The US government has indicated that this is undesirable, as it would dent exports. A rise in the value of the dollar would additionally affect countries adopting dollar-backed stablecoins.
The underlying mechanism is that when capital controls are in effect, local demand for stablecoins creates a ‘crypto shadow premium’, in which local citizens pay well above official exchange rates to acquire digital dollars. This unmonitored capital flight drains domestic liquidity and triggers severe macroeconomic spillovers. Exogenous increases in stablecoin inflows directly cause local currency depreciation and widen covered interest deviations, increasing the premium for dollar funding in traditional foreign exchange markets. For emerging market central banks, this results in a loss of monetary sovereignty, as conventional tools for managing exchange rates and capital flows become less effective.
Stablecoins extend the reach of the dominant currency, but in doing so, they risk weakening monetary sovereignty in jurisdictions that cannot provide credible alternatives. Capital flows in the stablecoin markets risk affecting macroeconomic balances and could trigger significant variations in exchange rates.
“For investors, the key issue is the growing link between stablecoins and short-term government debt. If stablecoins become major buyers of Treasury bills, they could begin to influence liquidity, pricing and concentration risk in markets that are typically treated as risk-free.”
Ben Seager-Scott Chief Investment Officer, Forvis Mazars UK
Recognising the threats posed by dollar-dominated private stablecoins, the EU has opted for a strategy to protect its monetary sovereignty and attempt to boost the euro's international reserve status. With its digital euro project, the EU seeks to anchor digital finance in central bank money. The digital euro project demonstrates the EU’s ambition to set international standards for a Central Bank Digital Currency (CBDC), rather than relying on private stablecoin infrastructure. At the very least, the digital euro aims to reduce Europe’s dependence on non-European payment providers, such as US card networks and tech giants, and defend the domestic payment interface.
In parallel, Europe moved early to regulate private digital money, using the Markets in Crypto-Assets Regulation (MiCA) not only as a regulatory framework but also as a strategic tool to retain control over private digital money issuance. While MiCA entered into force in 2024, the pace of market and regulatory change, driven primarily by the GENIUS Act, has already prompted a reassessment of the framework. The European Commission’s 2026 consultation asks whether the framework remains fit for purpose, signalling that Europe’s ability to compete internationally now depends on its ability to adapt as quickly as competing jurisdictions. A potential discussion over a MiCA 2.0 could be opened in the coming months to review European rules on private digital money and ensure the European ecosystem’s ability to compete globally, including in the stablecoin market.
In the meantime, the EU continues to advance its digital euro project. The European Parliament backed the project by endorsing the European Council agreement in February 2026. The endorsement of a CBDC with online and offline functionality reflects a clear preference for public digital money in the EU.
As financial infrastructure evolves, the euro needs to remain at the core of transaction nodes rather than risk being displaced by private dollar-based instruments. If tokenised assets and transactions increasingly rely on private dollar stablecoins, part of the financial system effectively risks shifting onto foreign currency and infrastructure. The EU approach is designed to mitigate this risk and attempts to reinforce the international role of the euro via euro-backed digital forms of money.
Ultimately, this deliberate technological upgrade of a European token economy is a geoeconomic necessity. It aims to ensure that the Euro remains at the technological frontier, attractive as a global reserve currency and immune to foreign digital intermediation, thus securing European economic sovereignty. The development of the digital euro will position the EU as one of the largest jurisdictions with a CBDC, while other countries have rolled back their CBDC projects. The potential uneven competition between the retail digital euro and the euro-backed stablecoin risks preventing the emergence of a significant European player.
The UK has taken a more graduated approach, avoiding both early regulation and silent observation. The UK’s position differs from that of the US, considering the pound’s relatively low importance in global flows. However, the UK cannot afford to lag behind in reshaping monetary plumbing.
While not trying to prevent the emergence of a private form of digital money, the regulators have finalised a clear regulatory perimeter in which stablecoins can develop. At the same time, the Bank of England and HM Treasury continue to assess whether a digital pound is needed to preserve the role of public money in an increasingly digital payments landscape. Therefore, the UK may be a jurisdiction in which both private and public forms of digital money can coexist and develop, leaving it to the market to determine the relative importance of both instruments.
On stablecoins, the Financial Conduct Authority (FCA) is developing comprehensive rules for both systemic and non-systemic stablecoins to support the development of a safe and competitive sterling-denominated industry, while ensuring that stablecoins used in the UK maintain their value and are appropriately backed. On systemic foreign stablecoins, the UK is equally aware of the risks to macroeconomic stability posed by the growth of dollar-backed stablecoins. Hence, it is closely considering how the regulatory framework would need to be adapted for non-sterling-denominated stablecoins.
To find out more about the UK framework for digital assets, read our article.
In parallel, the digital pound remains under active consideration, with no decision yet taken. The Bank of England and HM Treasury’s work remains in the design phase through 2026, with a focus on developing a detailed blueprint, conducting technical experimentation and ensuring interoperability with other forms of money. If the project moves forward, it will ensure that central bank money continues to anchor the system as private digital money becomes more widely used.
“Private stablecoins will only scale sustainably within a clear and comprehensive regulatory framework that safeguards stakeholders and provides both statutory and supervisory protection. The trajectory in jurisdictions such as the US shows that regulated private issuance is emerging as the dominant model for digital money innovation.”
Wiehann Olivier Partner, Global Co-Head of Digital Assets, Forvis Mazars South Africa
Stablecoins are reshaping financial infrastructure and the dynamics of global financial flows. The growth of the stablecoin market has significant strategic implications. The transition to programmable, always-on financial markets redefines how liquidity is managed, how payments are executed and how value is distributed across the ecosystem. As a result, larger incumbents moving quickly could secure and even increase their competitive advantages, while smaller businesses may struggle with the cost and the challenge of understanding how the world is changing.
While stablecoins may support sovereign debt markets, their growth could disintermediate traditional commercial banking and complicate monetary policy transmission. As institutional and retail capital migrates from traditional bank deposits into stablecoins, tokenised deposits and tokenised money market funds, commercial banks face a drain on cheap deposits that is structural in nature.
The disintermediation of banks revives the concept of ‘narrow banking’. Because fiat-backed stablecoins operate on a fully reserved, non-credit-creating basis, the migration of transaction balances shrinks bank credit. Consequently, bank profit margins and net interest income may be compressed. Consequently, money becomes less elastic.
With ‘narrow banking’, banks can only lend out what exists. This makes credit more pro-cyclical and renders the market more vulnerable to short-term credit (Minsky) cycles. In the end, it translates directly into higher lending rates for the real economy, tightening overall financial conditions and complicating the central bank's ability to transmit monetary policy effectively. If regulators broadly permit yield-bearing stablecoins, this deposit substitution risk will accelerate, threatening the fractional-reserve funding model at its core.
“The stability of a stablecoin depends less on the token itself than on the quality of what stands behind it. Reserve composition, redemption mechanics and collateral liquidity will determine whether stablecoins absorb shocks or risk transmitting stress.”
Alexandre Poser Partner, Global Co-Head of Digital Assets & Co-head of Quants, Forvis Mazars in France
For banks, asset managers and corporates alike, the imperative is clear: selectively embrace tokenised instruments, stablecoin-enabled payment rails, and digital custody solutions to protect client relationships and preserve revenue pools. However, this transformation must be pursued with discipline. The same technologies that unlock efficiency gains also introduce new operational, liquidity and cyber risks that demand governance frameworks equivalent to those applied to critical financial models.
Ultimately, the reshaping of ‘monetary plumbing’ will not compensate for weak strategic fundamentals or poor balance sheet management. Instead, tokenisation should be viewed as a powerful enabler: one that rewards institutions capable of combining technological adoption with sound financial discipline in an increasingly digitised financial system.
Stay tuned for our upcoming EconomicsHub White Paper on the topic.
Stablecoins are digital assets designed to maintain a stable value. They are usually backed by high-quality liquid assets such as short-term Treasuries and bank deposits.
Stablecoins are private forms of digital money, while CBDCs are public digital money issued by central banks.
The stablecoins market currently accounts for a market capitalisation of $315bn.
Stablecoins can reshape capital flows, affect bank deposits and complicate monetary policy transmission. As money moves from bank deposits into stablecoins, banks may face structural funding pressure and central banks may find conventional tools less effective.
[1] European Central Bank, “Stablecoins on the rise: still small in the euro area, but spillover risks loom,” Financial Stability Review, November 2025, https://www.ecb.europa.eu/press/financial-stability-publications/fsr/focus/2025/html/ecb.fsrbox202511_05~63636227b4.en.html
[2] Sonja Davidovic, Tarek Ghani and Mariano Moszoro, The Rise of Stablecoins and Implications for Treasury Markets, Brookings Working Paper No. 195, October 2025. The rise of stablecoins and implications for Treasury markets | Brookings
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