Future of Finance


Stablecoins are not the destination but a stepping stone on the journey towards programmable money 

[MAY 2023]

It is easy to fall into the trap of treating monetary innovations such as Stablecoins in isolation, or as a final destination, when innovation is in fact constant and individual innovations are merely components of much larger secular trends driven by technology and the interaction of technology with the wants and needs of households and businesses. One organisation that has not made this mistake, and places Stablecoins firmly in the context of a financial system evolving towards programmable money, is Quant. Dominic Hobson, co-founder of Future of Finance, spoke to Gilbert Verdian, CEO of Quant, about what he sees in the Stablecoin phenomenon.

Key Insights From This Interview

The intensification of regulation of digital assets in general, and of Stablecoins in particular, in all the major financial centres, is part of strategy designed to prepare regulated banks to play the leading part in the coming era of smart, programmable money.

The differences between asset-backed Stablecoins and tokenised deposits are less important than the fact that tokenised deposits are issued by regulated banks, underlining that smart, programmable money will be used because it is trusted and trusted because it is issued by regulated banks.

Tokenised deposits are presently used between clients of individual banks only because the banks and their regulators want to ensure that the structure is right. Different monies issued by different banks will eventually inter-operate, both domestically and across national borders.

Tokenised money frees up much of the liquidity banks hold to settle payments between themselves, allowing them to extend more credit to corporate clients. Being programmable, tokenised money also allows banks to develop services beyond payments, such as making payment conditional on fulfilment of a contract.

Consumers and businesses will eventually migrate to regulated, bank-issued Stablecoins because they are more trustworthy, and more likely to make them whole in the event of loss, and regulators are encouraging them to move in that direction.

Regulators will not permit banks to issue commercial forms of programmable money that are useable only within “walled gardens.”  Stablecoins will be available in multiple forms, but they will be inter-operable and usable to make and receive payments throughout economies and between economies. 

Regulators will always act when an innovation or market development threatens the stability of the financial system, but in regulating Stablecoins they are seeking mainly to encourage the development of safe forms of smart, programmable money.  

Central banks will not permit Stablecoin issuers to compete on the quality of the collateral that underpins their Stablecoin. In fact, smart, programmable money is more likely to be backed by central bank reserves controlled by the issuing bank.

As issuers of Stablecoins, banks will compete primarily through programmability. Some will excel at conditional corporate payments, others at cross-currency transactions, and others at personal payment services.

Programmable money creates service possibilities that are not possible with the current structures of money and payments, so once money is tokenised banks will be able to offer a range of borrowing, lending and investment products that are impossible today. 

CBDCs and Stablecoins are not competitive but complementary. Like the various forms of payment available today, they will work together to deliver better services for businesses and consumers, and it is businesses and consumers that will determine what those services are.