This year we are going to face up to an unexpected question – what exactly is the future of money? The traditional “cash or card” debate is only the start of it. We have all tried to understand crypto – and only, at best, half succeeded in doing so. But 2025 saw clear signs of an emerging battle to control the flow of money and transactions – much of it based around a new creation called stablecoin that may, or may not, live up to its name over time.
To understand the coming battle, we need to focus on two things. One is the kind of anarchic, anti-establishment mood that led to the creation of crypto. It was money created and controlled outside the normal rule book. It was a power play by the tech sector and crypto promoters to barge into an area traditionally the preserve of governments and central banks. It is the kind of Wild West finance that – no surprise – Donald Trump really loves.
The other, related factor is that this is in large part a battle for control of the plumbing of the financial system. For years, this has been the preserve of central banks, commercial banks – via the Swift system, for example – and a range of regulated financial intermediaries. The advent of crypto was based on blockchain, a decentralised database or ledger that allows users to communicate and make payments directly, rather than via the traditional route, using an intermediary such as a bank. Crucially, it promised speed and a lack of regulatory barriers and checks to the movement of money.
Blockchain transactions were central to the growth of crypto and also to the newer player in the market: stablecoin. It has been around in various forms for a few years, but is only now gaining real traction. Like traditional crypto, this is a digital currency but it also acts as a bridge back to the traditional financial world by being linked in value to assets such as big currencies, in almost all cases the US dollar. And to meet this promise of convertibility the companies promoting it – by far the largest are financial technology firms Tether and Circle – require holdings of US dollar assets, normally US government bonds or treasuries.
READ MORE
The 25 per cent plus fall in the average value of crypto currencies towards the end of last year – the main decline was in mid-October – left many newer investors in Bitcoin and other popular digital currencies sitting on losses. But unlike crypto, which was used as an investment punt by many, the point of stablecoin is its, well, stability in value and thus its use in transactions.
[ Cryptocurrency is financial cocaine for the middle classesOpens in new window ]
Legislation introduced in July in the US to regulate the digital currency – the Genius Act (the Guiding and Establishing National Innovation for US Stablecoins) – forbids any interest rate return to those holding stablecoin and has rules for assets that issuers must hold. This official recognition and regulation has given a boost to stablecoin, with some forecasters expecting the amount in issuance could rise from around $250 billion now to $2 trillion by 2028. Sceptics such as JP Morgan feel the likely growth could be more modest, with the market growing two or three times in the next few years to between $500 billion and €750 billion. Other types of digital assets, such as tokenised deposits issued by commercial banks, are also in the battlefield seeking common usage.
But it is stablecoin that is central to this building war over the control of money and the payments system. It is also causing nervousness in central banks and among traditional players in the areas of banking and payments. Their concerns relate to a few areas. One is the lack of control of official regulators on the infrastructure of this new “money”, and the possible implications for monetary policy – and controlling criminality. For traditional operators – banks and payment companies – profits and potentially deposits are on the line.
The essence of stablecoin is the promise that it can be converted back into a set asset value – usually a US dollar. For as long as holders of the coin retain confidence that their stablecoin really is worth a dollar, then all is fine. But if they start to lose confidence and demand dollars in return for their stablecoin, can the issuer cope? And what would this mean for the US treasury market if they start to unload at lot of holdings at once, and for wider financial market stability?
For now, the Trump administration is betting that stablecoin can work in its favour, increasing demand for US assets, particularly treasuries, at a time the country has a big deficit that needs to be financed. Already stablecoin issuers are significant buyers of US treasuries. The US also hopes that it will be used in countries with less stable currencies, leading to “dollarisation” spreading to America’s advantage. Big global retailers are also reportedly examining the use of their own stablecoin, as are some big US financial houses. Whether the technology can jump from its current use – mainly for cross-border and crypto transactions – into the retail area remains to be seen.
Worried about the US cementing its dominance, 10 European banks – including big players such as ING, UniCredit and BNP Paribas – plan to launch their own euro stablecoin, Qivalis, in the second half of 2026. And the US moves mean pressure is now on the European Central Bank to progress its move to issue a digital euro – that is not a stablecoin but rather a digital representation of the euro currency.
[ Five things investors should ponder on cryptoOpens in new window ]
It is, in other words, money mayhem, a struggle for control, influence and, of course, profits. But the big question is whether stablecoin will, in fact, live up to its name. The biggest player, Tether, is based in El Salvador and ratings agency S&P recently cut its rating to weak, arguing that it held too many high-risk assets such as Bitcoin and its finances were not sufficiently transparent. The company, not surprisingly, disagreed.
The test of this would come in a financial market downturn that will, sooner or later, happen. That is when we will know whether the new era of blockchain-based digital money will really sweep the world of transactions, or whether its rapid progress will face a big reality check.
