New Delhi: A new study from the Bank for International Settlements (BIS) suggests that stablecoins, digital tokens pegged to the US dollar, are not just a crypto curiosity. They are quietly competing with ordinary bank deposits for people’s savings.
The report asks a simple question: when banks raise the interest they pay on deposits, do people pull money out of stablecoins? The answer, based on weekly US data from January 2019 to June 2025, is yes.
Why this matters
Stablecoins such as Tether (USDT) and Circle’s USDC are designed to always be worth one dollar. Holders can send them instantly across the world, use them in crypto trading or park money in them. The market has ballooned from under $5 billion in 2019 to more than $220 billion by mid-2025.
Like a basic bank deposit, stablecoins promise safety and quick access. Unlike a deposit, they usually pay no interest. That raises a long-standing worry among regulators: if stablecoins grow large enough, could they drain cheap funding away from banks and squeeze lending to households and businesses?
A clever test
Measuring this competition is tricky because stablecoins are still small compared with the US banking system. So the authors turned the question around. Instead of asking whether stablecoins hurt banks, they asked whether stablecoin demand reacts when banks sweeten their deposit offers.
To isolate cause from effect, the researchers used an unusual quirk in how banks price deposits. When the Federal Reserve’s benchmark rate is below about 3%, banks barely raise deposit rates at all. Above that level, they start competing much harder for savers. This jump lets the authors cleanly measure what happens when deposit rates genuinely move.
What they found
The results are striking. A one-basis-point rise in the average deposit rate — just one-hundredth of a percentage point — slowed stablecoin growth over the following ten weeks by about three percentage points under a basic estimate and roughly nine percentage points under their preferred method.
To be clear, stablecoins did not shrink. They simply grew more slowly. During the Federal Reserve’s aggressive 2022–2023 rate-hiking cycle, total stablecoin value did fall by around 30%, alongside other shocks, such as the collapses of TerraUSD and the FTX exchange.
Interestingly, Circle’s USDC reacted more sharply than Tether’s USDT. That fits with USDC being used more by American institutions and decentralised finance platforms, while USDT circulates heavily offshore and in emerging markets, where US bank rates matter less.
What it means
The study offers early evidence that stablecoins behave like a new form of money that competes directly with bank accounts. For monetary policy, that means Federal Reserve decisions now ripple into crypto markets through yet another channel. For regulators debating stablecoin rules, such as whether issuers should pay interest or hold reserves in banks, the trade-offs have just become more concrete. The line between traditional and digital money, it seems, is drawn in interest rates.
