Towards a currency war?
The payments landscape now consists of six types of money: traditional cash (banknotes and coins), bank deposits, Bitcoin, payment stablecoins, central bank digital currencies, and tokenized deposits.
Banknotes and deposits are liabilities against central banks and commercial banks respectively. Their safety is supported by deposit guarantee schemes, access to central bank refinancing, and the central bank’s role as lender of last resort.
Bitcoin is a specific case. Its function as a means of payment remains largely theoretical, but this potential use contributes to its value. Devoid of any payment usage, Bitcoin would merely be an asset characterized by its issuance rule, namely a capped supply of 21 million units. Its value actually reflects the libertarian convictions of its creator(s): it is perceived as a form of insurance against the collapse of states and other trusted intermediaries.
Apart from Bitcoin and stablecoins, these new forms of money remain liabilities issued by financial institutions and held by consumers. Their reliability depends on the creditworthiness of the issuer. Risk is the lowest for banknotes and Central Banking Digital Currencies (CBDC), while traditional and tokenized deposits involve slightly higher risk but remain protected by deposit insurance and regulatory supervision.
While banknotes and deposits provide greater security for consumers, CBDCs, payment stablecoins, and tokenized deposits play on a relatively equal footing when it comes to quick exchange, payment execution, and confirmation of settlement.
As a result, the competition is fairly balanced: traditional forms of money remain superior in terms of safety, while newer payment instruments match them in terms of cost efficiency and ease of use.
What Risks for the Financial System?
The stablecoin ecosystem is fragmented, with instruments such as USDT, USDC, PYUSD, and EURC. This fragmentation reduces interoperability and weakens the smooth functioning of payment networks.
Moreover, the leading stablecoins are denominated in US dollars. USDT and USDC, issued by Tether and Circle respectively, form a near duopoly with approximately USD 190 billion and USD 76 billion in circulation. EURC, by contrast, represents only around EUR 450 million and is also issued by Circle.
Consequently, foreign players contribute to strengthening dollar dominance and increasing dependence on non-European payment infrastructures. Since money and payments are inherently matters of sovereignty, Europe must develop its own solutions. The Qivalis consortium represents a first step in this direction through a euro-denominated stablecoin compliant with European crypto asset regulation (MICAR) and governed by European shareholders, including the Luxembourgish Spuerkeess.
Stablecoins circulate mainly on public blockchains characterized by pseudonymity and uneven KYC controls. This creates vulnerabilities related to money laundering, terrorist financing, and sanctions evasion.
Efforts are underway to strengthen compliance with financial integrity rules. Stablecoin issuers retain control over outstanding balances and can freeze assets associated with specific blockchain addresses. Blockchain analytics companies also support law enforcement authorities in high-profile investigations.
While these developments are positive, they cannot replace large-scale AML/CFT controls and sanctions screening routinely performed for everyday payments. Some jurisdictions are therefore moving toward regulatory frameworks that restrict stablecoin circulation to addresses that have undergone KYC procedures and require issuers and intermediaries to comply with AML/CFT standards comparable to those applicable to traditional account-based payment systems.
What Strategy for Banks?
Today, banks control accounts, transfers, international payments, and a significant share of payment data. Tomorrow, payment interfaces could be owned by large stablecoin issuers, fintech firms, technology platforms, and global digital wallets. In such a scenario, banks would retain reserve assets but lose customer relationships and, therefore, part of the associated revenues.
This situation also presents, nevertheless, significant opportunities. Banks can issue euro-denominated deposits as tokens while preserving the strengths of the traditional banking model: regulatory supervision, one-to-one convertibility, AML/KYC controls, and access to central bank liquidity. In doing so, they can deliver the benefits of stablecoins, including programmable payments, 24/7 availability, and instant settlement, without the associated risks.
Regulatory concerns surrounding stablecoins also increase the value of banks’ existing capabilities in KYC, AML, sanctions screening, and fraud prevention. Banks can transform this expertise into a chargeable business by offering digital payment solutions that are compliant by design, thereby monetizing substantial compliance investments.
Banks are also the natural custodians of assets. Corporates and institutional investors require secure solutions for safeguarding digital assets, and banks can provide custody services, cryptographic key management, insurance, and regulatory reporting.
Finally, tokenization can make cross-border payments faster, cheaper, and more transparent. Banks can enhance their payment, foreign exchange, and international cash management offerings through new tokenized infrastructures.
“Join the Party”
Despite the disintermediation risks associated with new payment methods, banks have an opportunity to play a central role in the custody, settlement, and distribution of tokenized bonds, investment funds, and other financial assets. This creates new revenue opportunities in digital capital markets. The most significant opportunity for banks may not be to become stablecoin issuers, but rather to provide tokenized, programmable, and regulation-compliant bank money, building on the trust already placed in the banking system.