Stablecoins could move money out of banks at digital speed

Stablecoins are digital tokens designed to track assets such as the U.S. dollar. They can settle transactions at any time without bank operating hours, correspondent banks or traditional settlement cycles. Users can hold and transfer digital dollars without a conventional bank account.

Anthony Vassallo, director of crypto at Silicon Valley Bank, which now operates as a division of First Citizens Bank, described two time frames for the effect on banks. The slower one involves currency substitution, falling deposits and weaker monetary policy transmission over months or years. The faster one involves a stablecoin losing its peg, an issuer facing a shock or a banking event that moves capital within hours.

“Two clocks matter,” Vassallo said. “One is slow: currency substitution, deposit erosion and weakening policy transmission building over months or years. One is fast: a depeg, issuer shock or banking event that can move capital at software speed within hours.”

The European Central Bank has warned that large stablecoin reserves held in commercial bank deposits could trigger withdrawals if users rapidly redeem their tokens. Stablecoins can settle continuously, while the assets backing them may take longer to access or transfer. That creates a liquidity mismatch between digital tokens and the banking system.

The risk emerged in March 2023 after Circle disclosed that $3.3 billion of USD Coin’s reserves were held at Silicon Valley Bank. USDC lost its dollar peg after the bank failed, turning the banking crisis into a stablecoin crisis. U.S. authorities later guaranteed deposits at the bank.

A Bank for International Settlements study published in July 2026 examined stablecoin flows and conventional foreign-currency deposits across 130 economies. Both increased during periods of currency pressure and banking or sovereign crises. Stablecoin flows appeared less affected by capital controls, giving residents another way to move away from weakening local currencies.

A September report from Sphere Labs and Silicon Valley Bank identified Argentina, Nigeria and Turkey as markets where stablecoin demand was closely linked to demand for U.S. dollar exposure. In Argentina, 94% of crypto purchased with pesos was in stablecoins, according to the report. In Turkey, about $38 billion in lira was exchanged for stablecoins over one year.

Arnold Lee, chief executive of Sphere Labs, linked adoption to demand for dollars among people with limited access to traditional banking services. “Most of these economies are going to keep moving toward dollars,” Lee said. He added that the way this happens could affect how governments manage the change.

A separate BIS study published in March found that stronger demand for dollar stablecoins could weaken local currencies and increase the cost of obtaining dollars through foreign-exchange swaps. The effect was greater when financial intermediaries were already under pressure. Lee said shifting from local currencies into digital dollars can weaken monetary policy transmission and reduce bank deposits faster than central banks can respond.

The Sphere Labs report described a January 2025 dispute between the United States and Colombia. Colombians increased their purchases of digital dollars while banks and currency exchanges were closed for the weekend. Stablecoin platforms continued processing transactions.

European Union rules under the Markets in Crypto-Assets regulation require stablecoin issuers to hold at least 30% of reserves in bank deposits. The requirement reaches 60% for significant asset-referenced tokens. The European System of Central Banks has proposed replacing fixed percentages with rules based on how quickly reserve assets can be accessed.

Stablecoins are also used as payment channels. Pankaj Bengani, co-founder of stablecoin payments company MELD and a former Block executive, said nearly half of the company’s business-to-business stablecoin off-ramp volume comes from North America. Its users include importers, exporters, technology companies, online marketplaces, payment firms and fintech companies.

“Most corporates in our data convert back to fiat immediately after the transaction settles,” Bengani said. Supplier payments account for nearly one-third of business use, while invoice settlement represents about one-quarter.

Bengani said stablecoins are unlikely to replace the global banking network immediately. They can reduce the number of correspondent banks involved in cross-border transfers, while banks continue to provide custody, compliance, liquidity and local settlement. Reserve assets remain held in bank deposits and government securities.