A report by Cointelegraph stated that allowing interest payments on stablecoin deposits could lead to massive withdrawals from banks, in a scenario similar to the money market fund boom of the 1980s.
Ronit Ghosh, head of 'Future of Finance' at Citi, explained that the value of money market funds rose from $4 billion in 1975 to $235 billion in 1982, thanks to offering higher yields compared to banks, which resulted in massive banking withdrawals exceeding $32 billion during 1981-1982.
Sean Feirgotz of PwC confirmed that the demand for higher-yielding stablecoins could put pressure on banks, forcing them to raise interest rates on deposits or rely more heavily on financing from markets, which could increase the cost of credit for households and businesses.
Currently, the GENIUS Act prohibits stablecoin issuers from paying interest directly to holders, but the restriction does not cover crypto exchanges, which has raised widespread objections from the banking sector. American banking associations argued that this 'loophole' could threaten the financial system with a potential withdrawal of up to $6.6 trillion from traditional deposits.
In contrast, crypto institutions are advocating for the status quo, arguing that any new restrictions would benefit traditional banks at the expense of innovation and consumer choices.
For its part, the U.S. administration shows support for the use of dollar-linked stablecoins to enhance the global standing of the U.S. dollar. Treasury Secretary Scott Pizent stated in March that the Trump administration sees stablecoins as a strategic tool to maintain the dollar's dominance as a global reserve currency.
