In a recent publication, Laurent Quignon from BNP Paribas’ Economic Research department looks at stablecoins, exploring their use versus fractional banking and the impact on loan issuance by financial institutions. If stablecoins achieve critical mass, could they hamper funding the real economy?
Adoption of stablecoins remains marginal, but potential is intact
Stablecoins are fully reserve-backed crypto-assets, underpinned by safe and liquid assets, and mostly aiming for parity with the dollar, therefore offering a relative stability. These digital tokens run on blockchains, providing instant, borderless transferability making them a more stable alternative to first‑generation cryptos such as Bitcoin.
Beyond cross-border payments or fund transfers, stablecoin adoption remains marginal, although Laurent Quignon points out that they cut friction and cost by simplifying international payments: “stablecoins could quickly supplant, or at least compete with, traditional banking methods and even the more recent alternatives offered by various fintech service providers.”
He notes that market dynamics differ sharply across the Atlantic. In the US, stablecoin issuance has soared from around USD1 billion in early 2019 to over USD300 billion today, spurred by global demand for dollar‑denominated assets and the 2025 Genius Act, which formalised stablecoins as regulated payment instruments. Conversely, Europe’s euro stablecoin market is nascent at less than EUR350 million, with most tokens issued in US dollars. The MiCA regulation implementation in December 2024 forced the delisting of more than EUR140 billion of non‑compliant stablecoins, notably USDT, creating significant market disruption: this amount corresponds to the global capitalisation of stablecoins that are no longer tradable on European Union platforms since MiCA came into force.
A return to old precepts
As fully collateralised tokens, Laurent Quignon makes a parallel with the franc germinal, the former French currency in the 18th century. Just as stablecoins can be exchanged at any time for secure assets in an official currency, so banks had the obligation to convert deposits into gold or silver. They therefore indeed deliver stability, but could curb credit supply if widely adopted.
Conversely, he notes that when bank deposits increase, they constitute both a banking resource for new loans (the latter being the counterpart of deposits created from a monetary analysis perspective), financing new projects and contributing directly to the expansion of the real economy. This distinction underscores banks’ key role in terms of money supply and liquidity, creating new resources versus non‑bank financial intermediaries.
❝ Behind this apparent modernity lies an old logic: currency fully backed by reserves. Stablecoins are based on existing claims as they do not create new financing but instead recycle financial assets that are already available. ❞
Upsetting the balance with stablecoins
According to Laurent Quignon, with just a small fraction of bank deposits backed by Central Bank reserves and “high-quality liquid assets” since 2015, banks can lend and create money (deposits) beyond the reserves they hold with the Central Bank. He notes that preserving this money creation is key for the EU to mobilise the funding it needs to sustain global competitiveness, guarantee defence sovereignty, and drive the energy and climate transition. As such, stablecoins could profoundly change the nature of bank deposits and make them much more volatile, weakening their ability to create money and finance the real economy as the development of stablecoins would increase the likelihood of deposits being converted into digital tokens and leaving the banking system.
Regulating stablecoins without restriction
Laurent Quignon also highlights the view of the Governor of the Bank of England that stablecoins contribute to payment innovation on the proviso that they meet the soundness and protection standards of existing currencies. He points out progress by European banks, with the European Payments Initiative (EPI) and Wero, a transparent, home-grown alternative to the US payment industry leaders.
He notes that the response is still in the early stages and focused on Europe: however, banks have the wherewithal to offer global, competitive, instant and interoperable payment solutions as a result of their large customer base, strong infrastructure and innovation capabilities.
He concludes that the future for the European financial ecosystem and its credibility will depend on strengthening the user experience, reducing cross-border costs and developing further strategic alliances. Time is of the essence.
For more information, please visit: Economic Research – BNP Paribas