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In his observations, Paul Volcker characterized the ATM as the sole notable innovation in banking he had encountered over decades. The IMF has identified the optimal degree of financialization for economic growth was achieved in Poland shortly after 2010. While enhancements could be beneficial, they would necessitate stringent regulations—something that is often lacking in practice.
Cryptocurrency, particularly stablecoins, can facilitate quicker international money transfers. However, sponsors, especially those from government backgrounds, should exercise caution regarding what they truly desire. In reality, beyond small transactions or those involving familiar parties, irrevocable payments expose the buyer or transferor to substantial risks. I personally know individuals who have fallen victim to fraud and who likely would not have suffered losses had they remained within a regulated framework. Moreover, it opens doors to significant corruption that can yield negative macroeconomic consequences. For instance, in a Southeast Asian country (as per insider intel), the central bank has lost control over its currency—usually managed to some extent—due to the influx of crypto purchases targeting gold.
By Satyajit Das, a former banker and author of several technical works on derivatives as well as general titles such as Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives (2006 and 2010), Extreme Money: The Masters of the Universe and the Cult of Risk (2011), and A Banquet of Consequence – Reloaded (2016 and 2021). His latest book focuses on ecotourism—Wild Quests: Journeys into Ecotourism and the Future for Animals (2024). This piece has been revised from its original publicationon September 20, 2025, in the New Indian Express print edition.
Blockchains consist of an encrypted database (the ledger) that is upheld by a decentralized network of private record-keepers or validators. These individuals update and maintain records of property rights and transactions by appending new blocks through consensus. Despite its promise, blockchain technology has been seeking a definitive application.
Initially serving as the foundation for Bitcoin, which aimed to redefine money but ultimately transformed into a speculative asset, blockchain technology evolved further into decentralized finance (DeFi). Its newest form is the ‘stablecoins,’ tokens that operate on public blockchains (like Ethereum) and maintain a value pegged to fiat currency, typically equal to $1. Initially designed to facilitate the transfer of cryptocurrencies between exchanges, wallets, or into cash, stablecoins avoid the high transaction fees associated with crypto-to-fiat conversions and counteract the lack of traditional bank accounts for fiat currency deposits or withdrawals. Notable stablecoins, such as Tether, Circle, and EUR CoinVertible, are now being promoted as a viable global payment system.
The rising interest in stablecoins is partly fueled by increased regulatory clarity in major jurisdictions, particularly in the U.S., through initiatives like The Genius Act. The interests of Trump enterprises alongside some close supporters within the crypto landscape are, coincidentally, aligned. Furthermore, stablecoins generate demand for dollars and short-dated, interest-bearing U.S. Treasury bills, assisting the American government in funding its deficit. Current investments, totaling $200 billion (or 2 percent of outstanding securities), are on the rise.
Advocates list multiple advantages. Stablecoins can settle transactions almost instantly, whereas traditional payment systems, especially for international payments, might take up to five days. These digital currencies are not only more cost-effective than conventional money transfers but also operate without borders, providing enhanced efficiency compared to existing domestic and international bank systems, which often present layers of fees. Additionally, transactions can occur anytime, day or night, throughout the year. However, this advantage is overstated; modern bank transfers are also often efficient—though limited to business hours. With every technology entrepreneur aiming to ‘better the world,’ the argument of inclusion through stablecoins opening access to underserved communities is frequently made.
Yet, concerns persist. Existing systems manage $5 to $7 trillion in daily global money transfers. In contrast, stablecoin transactions range from $20 to $30 billion per day. Scaling and speeding up stablecoin transactions calls for compromises, such as processing some transactions off-blockchain or modifying consensus verification protocols. They derive data from an underlying layer, which compromises security and necessitates centralization, contradicting the initially decentralized ethos of the technology.
The stability and wider acceptance of stablecoins hinge on reliable high-quality reserves, primarily cash or short-term government bonds. However, verifying these holdings poses challenges, especially since many issuers are based offshore and face limited audits. On occasion, stablecoins have experienced de-pegging from their intended fiat currency, usually spurred by doubts regarding their reserve backing.
In contrast to traditional funds transfer systems, which are backed by central banks with controlled access, blockchain-based platforms are more open, resulting in a corresponding loss of security. Additionally, conventional systems benefit from manual interventions and thorough checks, while digital currencies are less secure and more susceptible to wallet, custody, or private key theft. The most significant risk arises when access points are compromised, as transactions are predominantly irreversible. Such compromises can lead to catastrophic financial losses if security is breached or if codes and keys are misplaced.
Claims of transparency related to stablecoins are often exaggerated. Though theoretically, every step in a transaction chain is visible, pseudonymous wallet addresses used in public blockchains can mask individual users’ identities. This differs from traditional banking, where personal identification is mandatory. While stablecoins offer privacy protection, this comes at the cost of accountability and financial integrity. In contrast, legacy systems, despite their inefficiencies, allow for tracing routes and statuses and enable the reestablishment of claims in case issues arise.
Unlike fiat money, the issuance of stablecoins is limited by the amount of collateral available, potentially impacting economic activity, credit availability, and monetary policy implementation. Should stablecoins become widely accepted, they could absorb existing securities, affecting governmental bond prices and liquidity. While stablecoins can lower short-term Treasury bill yields, their impact is similar to that of small-scale quantitative easing on long-term yields. Withdrawals could lead to disproportionate yield increases, rising two to three times more significantly than declines caused by inflows. Deposits in banks would decrease, which could be exacerbated in times of financial crisis when depositors seek safety and switch to stablecoins, intensifying bank runs. Furthermore, as stablecoins grant access to foreign currencies, they may facilitate capital flight during periods of instability, undermining a country’s monetary sovereignty and creating new pathways for contagion to spread shocks throughout the financial system.
Additionally, stablecoins lack sufficient legal protection. Holders have no legal entitlement to the underlying assets, and in the event of the issuer’s bankruptcy, they are considered unsecured creditors. Compounding this issue, most stablecoin issuers are private firms often located in tax havens, operating on an international scale. The rapid proliferation of stablecoins raises concerns about the complex interoperability of systems, leading to intricate bridges with automated escrows and the issuance of “wrapped” tokens across multiple blockchains.
As digital bearer instruments that operate through borderless public blockchains, stablecoins bypass critical integrity safeguards. While they may reduce barriers for underserved populations, they also expose individuals to potential illegal use, including finance-related criminal activities, as user identities remain hidden behind wallet addresses, evading anti-money laundering and know-your-customer regulations.
Ultimately, money relies on trust and acceptance, serving as a common mechanism for trade and value storage—crucial for social and economic interactions. It is anchored against a common secure asset, typically provided by central banks, which operate in the public interest and are backed by the state’s full faith and credit. Blockchain-based stablecoins aim to replace this with a decentralized network of self-serving private record-keepers. The intricate incentive structures may cultivate an insecure system where the pursuit of speed, volume, and profit dilutes the standards necessary for achieving consensus.
Stablecoins represent an effort by private entities, cloaked in lofty technological rhetoric, to monopolize a critical function for profit rather than societal advancement. While the current system may have imperfections, uprooting a time-tested framework could jeopardize trust, especially when existing avenues for enhancing settlement times and reducing costs in traditional payments are readily available.
