Could stablecoins be the future of money?

STABLECOINS, which are digital assets designed to maintain a consistent value, have experienced explosive growth in recent years.

As at early 2026, the total market capitalisation of stablecoins stands at about US$320 billion – a substantial increase from under US$50 billion just a few years earlier.

This is prompting new regulatory frameworks and raising important questions about their impact on financial stability, monetary policy and the international monetary system.

On Sep 1, the Monetary Authority of Singapore (MAS) put out a consultation paper on proposed changes to the Payment Services Act, which sets out the country’s stablecoin framework.

Ideas include requiring full reserves, redemption at face value and solid user protections for stablecoins that want the “MAS-regulated” label.

The regulator is also looking at allowing some joint issuance with overseas partners and limited recognition of well-regulated foreign stablecoins.

These measures would help Singapore stay a practical, open place for digital money in Asia, in contrast with the US’ push for private dollar stablecoins and Europe’s stronger focus on a digital euro.

How US and Europe differ

The divergence between stablecoin legislation in the US and Europe is striking, reflecting broader debates about monetary sovereignty and financial stability.

In July 2025, the US enacted the Guiding and Establishing National Innovation for US Stablecoins Act establishing the first comprehensive federal regulatory framework for payment stablecoins.

The legislation requires one-to-one backing with high-quality liquid assets – such as cash, bank deposits and short-term US Treasuries – mandates redemption at face value, imposes strict compliance requirements and creates clear licensing and oversight regimes.

It also prohibits issuers from paying interest or yield to stablecoin holders and clarifies that compliant stablecoins are neither securities nor commodities, providing legal certainty that has strengthened institutional confidence.

As long as private-market players abide by these regulations, they are allowed to issue stablecoins. In other words, the US has adopted a permissive legal framework.

The EU has taken a notably stricter and more conservative path with its Markets in Crypto-Assets regulation, which prioritises financial stability and the preservation of the bloc’s monetary sovereignty.

But that does not mean the EU is shunning the technology. The digital euro, to be launched in 2029, is a central bank digital currency (CBDC) designed to complement traditional cash.

Economically, the digital euro could offer several benefits. It would provide a secure, standardised settlement asset with broad distribution, while reducing payment costs and enhancing the resilience of the payment system.

On the other hand, the digital euro also raises financial stability concerns. In times of market stress, households might rapidly shift funds from bank deposits into digital euros, potentially amplifying bank runs and pushing up banks’ funding costs.

To mitigate such risks, the design under consideration includes individual holding limits and may feature tiered or zero remuneration relative to traditional bank deposits – measures central to balancing the goals of innovation, efficiency and financial stability.

Higher perils in emerging economies

The risks of extensive stablecoin usage are more striking in Asia.

The continent accounts for the highest volume of stablecoin activity, led by Indonesia, Vietnam and the Philippines. Roughly 98 per cent of stablecoins are US dollar-denominated, and an estimated two-thirds are held by individuals in emerging economies.

Stablecoins offer frictionless offshore access to dollar liquidity, lowering barriers to cross-border dollar usage and bypassing traditional banking channels.

Thus, widespread adoption in these markets is likely to reinforce the international dominance of the greenback.

This can simultaneously weaken local currencies – through capital-flight pressures or deviations from parity – while extending the dollar’s reach.

Stablecoins can complicate, if not weaken, monetary policy transmission. A large-scale shift from bank deposits into non-interest-bearing stablecoins may increase banks’ reliance on wholesale funding and, in some cases, sharpen the pass-through of policy rates.

At the same time, unremunerated stablecoins can blunt the interest-rate channel to stablecoin holders, since policy-rate changes do not directly affect them.

In emerging markets, extensive use of US dollar stablecoins risks accelerating “real dollarisation”, whereby they begin functioning as a medium of exchange and unit of account.

The result would be an erosion of local monetary sovereignty and a weakening of domestic policy transmission.

Regulation could pave the way

Hence, the balance of risks and opportunities of the technology must be weighed.

While both stablecoins and the digital euro represent significant steps forward in the evolution of money, it seems unlikely that these innovations will fully replace existing payment systems in the foreseeable future.

Total stablecoin transaction volumes reached around US$33 trillion to US$35 trillion in 2025, an impressive figure.

However, these headline figures are dominated by crypto trading. Actual payment-related flows for real-world economic use were estimated at only about US$390 billion in 2025 – a tiny fraction of gross volumes, and negligible relative to traditional payment systems such as Visa or Mastercard.

New regulation could accelerate the adoption of stablecoins.

This is where the MAS proposal comes in. In the case of Singapore, an “MAS-regulated” stablecoin would create differentiation and trust.

This, in turn, should encourage institutional and sophisticated use of stablecoins as a settlement asset, alongside tokenised bank liabilities and wholesale CBDC experiments.

Such an environment would help support the broader push for tokenisation and position Singapore as a carefully regulated hub for stablecoins rather than a free-for-all market – an important consideration as digital currencies and tokenisation of assets gain steam, especially in emerging markets.

Both writers are senior economists at Pictet Wealth Management