$USDC This is how 'stablecoins' can end up being destabilizing

Banks will retain many of their deposits but could become larger and less reliable EXCLUSIVE

The widespread adoption of "stablecoins" would not mean the disappearance of all bank deposits, only some of the best ones. The US Senate seems ready to soon approve the so-called Genius Act, which will establish guidelines for stablecoin issuers, digital tokens fully backed by fiat currencies like the dollar. One of the major debates regarding the appropriateness of providing stablecoins with a regulatory framework centers on how they would affect the current banking system if they were to expand enormously. Strictly speaking, stablecoins do not withdraw funds from the banking system. One way or another, those dollars usually end up returning to the banks. However, what banks obtain could be something very different: the kind of large and unsecured deposits that make some people nervous. When a stablecoin is created in US dollars, the issuer receives US dollars that they hold in reserve. According to the guidelines proposed in the versions of the Genius Act, stablecoin issuers can hold reserves in bank accounts. They can also purchase assets like US Treasury bonds, which transfers cash to the accounts of the sellers of those assets. They can even lend cash to banks, as part of so-called repurchase agreement operations, just as money market funds usually do. "Stable cryptocurrencies could be considered similar to a digital version of money market funds," wrote JPMorgan Chase strategists in a recent note. With these types of funds, "bank deposits are not 'destroyed' with this change, but simply transferred to other economic agents," noting that this shift does not reduce the availability of credit.

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