Citi Executive Warns: Stablecoin Yields Pose Risk to Traditional Bank Deposits
Ronit Ghose, a prominent executive at Citi, has issued a stark warning regarding the potential for interest-bearing stablecoins to significantly disrupt traditional banking systems. Ghose suggests that offering yields on stablecoin holdings could trigger a substantial outflow of funds from conventional bank deposits, drawing parallels to financial shifts observed in the 1980s. This development, he cautions, could lead to a rise in banks' funding costs and subsequently increase the price of credit.
The Potential Impact on Banking
The mechanism for this disruption, as highlighted by Ghose, lies in the attractiveness of stablecoins that offer competitive returns to holders. If these digital assets provide yields surpassing those of traditional savings accounts, they could incentivize depositors to shift their capital, thereby shrinking the **deposit base** of commercial banks. This scenario echoes the financial landscape of the 1980s, a period marked by significant shifts in consumer banking behavior and funding dynamics.
Such a reduction in available bank deposits would compel financial institutions to secure funding through more expensive channels, inevitably leading to an increase in their **funding costs**. These elevated costs are then likely to be passed on to borrowers in the form of higher **credit prices**, affecting everything from mortgages to business loans and potentially dampening economic activity. Ghose's concerns underscore a growing awareness within traditional finance regarding the systemic implications of digital asset innovation.