The Fear of High-Yield Stablecoins: Why Banks Are Worried
The largest banks in the USA are afraid, but not of a financial crisis, cyber attacks, or geopolitical shocks. They are afraid that high-yield stablecoins will pay interest to customers, threatening their $200 billion annual income from swipe fees and unused deposits.
This fear is driving banks to fight against the introduction of high-yield stablecoins, claiming that they would trigger a deposit exodus, destabilize lending, and endanger the entire financial system. However, history shows that banks have made similar claims about money market funds, fintech apps, and online brokers, only to be proven wrong.
Why Banks Don’t Like Yield-Producing Stablecoins
The real reason banks fear yield-producing stablecoins is that they threaten their revenue streams. Every time a customer swipes a card, banks charge a fee, and every time someone leaves unused cash in a low-yield checking account, banks profit by reinvesting that money at higher interest rates. Stablecoins threaten both revenue streams, and banks are lobbying to protect their businesses.
However, this approach will only make the U.S. less competitive in the long run. If the U.S. prevents the existence of high-yield stablecoins domestically, customers will simply turn to foreign issuers, shifting innovation, tax base, and regulatory oversight overseas.
The Danger of Stifling Innovation
The danger is that U.S. banks and regulators will stifle innovation and move it offshore. In a global financial system, consumers and investors are no longer limited to domestic products. If the U.S. prevents the existence of high-yield stablecoins, customers will still have access to these products, but the innovation, tax base, and regulatory oversight will be shifted overseas.
This would be a lose-lose scenario: U.S. consumers would still have access to these products, but domestic banks would continue to lag behind, hiding behind regulatory capture rather than competing on product quality.
Banks Are Bad at Predicting Disruption
This is not the first time banks have made apocalyptic claims about new financial instruments. When money market funds were first introduced in the 1970s, banks warned of the impending collapse of traditional banking. However, the system adapted, and banks responded by introducing new products and adjusting their funding mix.
The lesson of the 1970s is simple: innovations that pass returns to consumers do not destroy banks; they push them to innovate. Yield-producing stablecoins are just a 21st-century version of money market funds, forcing long-established players to modernize.
Banks Need to Stop Whining and Compete
At its core, this debate is about the spirit of competition. Stablecoins are simply the latest in a long line of innovations that banks initially resisted but ultimately learned to coexist with. Each time the predictions of doom proved wrong, and the financial system adapted.
Banks can continue to waste energy lobbying Congress and regulators to protect their turf, or they can embrace the future, innovate, and actually compete for customers based on performance. If they truly believe in the strength of American finance, the choice should be obvious.
According to Harbind Likhaari, Chief Product Officer of MNEE, a platform developing an incentive-driven stablecoin payment infrastructure for merchant applications, banks need to stop lobbying against innovation and start competing.
Harbind Likhaari is Chief Product Officer of MNEE, a platform developing an incentive-driven stablecoin payment infrastructure for merchant applications.
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