Stablecoins and the dollar: promise, politics and peril

At a CEPR panel on The Dollar, Financial Fragmentation and Stablecoins, London Business School's Professor Richard Portes delivered a clear warning: stablecoins may be profitable and politically fashionable, but they are a weak and risky substitute for money.

Moderated by AXA’s Gilles Moëc, the discussion brought together Emmanuelle Assouan of Banque de France, Isabel Vansteenkiste of the ECB and Portes, co-chair of the European Systemic Risk Board’s crypto-asset task force. While views differed on emphasis, the panel converged on a central concern: stablecoins sit uneasily with the two-tier monetary system that underpins financial stability.

Portes argued that stablecoins are not money in any meaningful sense. They do not always trade at par, carry credit and liquidity risks, and rely on a business model that is “insanely profitable” for issuers, who pay no interest to users while earning returns on reserves. That profitability, he noted, explains both the sector’s lobbying power and its strong political backing in the US.

He was particularly sharp on the international risks. Global dollar stablecoins such as USD Coin (a cryptocurrency stablecoin which is issued by Circle, a major financial technology company known for issuing the USDC) circulate across jurisdictions while holding reserves locally. In a crisis, US holders could seek redemption in Europe, quickly exhausting European reserves, while US regulators might block liquidity transfers. Recent financial crises, Portes observed, offer little reassurance that such transfers would be allowed when most needed.

Assouan and Vansteenkiste reinforced the case for central bank money as the anchor of trust, warning that stablecoins could trigger runs, fire sales of safe assets and new forms of financial fragmentation. Both emphasised that efficiency gains from digital finance should not come at the expense of stability or effective regulation.

For Portes, the alternative is clear: tokenised bank deposits. They retain the safeguards of the regulated banking system while capturing the benefits of distributed ledger technology. In five years’ time, he suggested, today’s stablecoin projections may look wildly overstated.

Audience questions pressed the panel on whether Europe risks missing out by focusing on risks rather than opportunity. Portes’s response was blunt: much of stablecoins’ appeal comes from bypassing scrutiny. Innovation matters, but not when it recreates the conditions for the next crisis.

The conclusion was understated but firm. Europe does not need to chase US-style stablecoin expansion. Its strength lies in modernising what already works: regulated banks, central bank money and a monetary system built for resilience rather than hype.