Bank of England Economist Sees Tokenized Deposits Supplanting Stablecoins

A Bank of England economist says stablecoins’ popularity could soon wane, supplanted by tokenized deposits.

“I think tokenized deposits are probably going to take over from stablecoins, and five years from now, I suspect we might wonder why we were talking about stablecoins,” said Megan Greene, whose comments Sunday (May 31) at a banking conference in Dubrovnik, Croatia, were reported by Reuters.

Greene contended that there is a market for central bank digital currencies (CBDCs), stablecoins and digital deposits, adding that this last product may emerge triumphant after commercial banks see they are otherwise going to lose traditional bank deposits.

Her views ran counter to those of fellow panelist U.S. Federal Reserve Governor Christopher Waller, who argued in favor of stablecoins as a payment method.

“There’s nothing evil about it, nothing dangerous about it,” he said. “They are just bringing competition into the payments world.”

Greene said digital deposits “haven’t taken off because commercial banks don’t want to lose the fees. … But they’re going to lose them anyhow, and when they realize this, they will put more [effort] into developing these.”

She argued that stablecoins are not that stable, pointing out that there are questions about their regulation and that they’ve been used for illicit purposes. Limitations like these, Greene contended, mean the future could be working against stablecoins.

“I like to think of it as a massive race between the tortoise, the hare and the rhino,” she said.

“The tortoise is the central bank digital currency … the hare is stablecoins and the rhino is tokenized deposits. We’ll probably end up with all three, but if I had to put money in one … it would be the rhino, tokenized deposits, which I think will probably take off.”

Writing about stablecoin adoption last week, PYMNTS argued that the ecosystem around these tokens looks like a high-speed system of highways feeding into underdeveloped local roads.

“On-chain transfers may settle instantly, but businesses and consumers still operate inside local banking systems, regulatory frameworks, tax regimes, treasury processes and compliance structures that were not designed for tokenized money,” the report added.

The result, PYMNTS said, is that the “last mile” of stablecoin adoption often comes with many of the same frictions blockchain was designed to eliminate.

The report also cited PYMNTS Intelligence research from March which showed that while 42% of middle market companies have at least discussed stablecoins, just 13% have reported actually using these digital assets.