According to sources familiar with the matter, some of the largest U.S. banks may form a partnership to launch an open-source stablecoin. This is an important development for traditional financial companies and suggests a change in their attitude towards digital assets. On May 22, The Wall Street Journal reported that these discussions were taking place among firms partially owned by major financial institutions, including JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo.
Early Talks
In its early stages, the talks about a possible joint stablecoin are ongoing, according to people familiar with the matter who spoke to The Wall Street Journal. This indicates that while the underlying concept is being explored, the project hasn’t been finalised yet and could be subject to change as it progresses or due to market conditions. Reuters was unable to confirm this information immediately, while many of the concerned banks, like Citigroup and Bank of America, refused to comment on what appeared in The Wall Street Journal’s report, as well as Wells Fargo.
Purpose and Potential Vehicles
The main reason behind the joint stablecoin project is to create a digital currency produced by banks that would retain its value, often tied to the US dollar. Stablecoins are frequently used in crypto trading for the movement of funds between various tokens. The talks allegedly include considering potential vehicles for issuing this stablecoin, such as companies owned collectively by participating banks like The Clearing House, which runs the real-time payments network or Early Warning Services LLC, which is the parent company of Zelle, the digital payments network. These players have already built up financial infrastructure and relationships in banking.
Supportive Infrastructure
Additionally, these organisations possess existing technological systems and can leverage them to issue a bank-issued cryptocurrency across their networks. They also hold licences to operate within the United States—hence no extra costs or regulatory processes are required for entering into this business sector—other than amending their operating rules to authorise the issuance of a “bank coin” on top of those amendments that are already in place at some banks or other providers. Furthermore, it has been reported that certain banks have already patented technologies linked with creating stablecoins.
Systems Integration
Institutions are considering integrating payment systems with cryptocurrencies through partnerships or acquisitions, but there are challenges due to distributed ledger technology’s slowness, inherent money characteristics, and inability to process large transactions. The surge in demand for stablecoins has led to the proposal of a joint stablecoin. The market cap for stablecoins has grown by 20%, with yield-bearing stablecoins accounting for 4.5% of the total supply. The American banking lobby is concerned that the stablecoin phenomenon could disrupt traditional banking functions, potentially reducing conventional income sources.
Strategic Response and Regulatory Context
A consortium of banks is exploring the possibility of a joint stablecoin venture to mitigate potential disruptions caused by decentralized finance applications and the challenge of global “Big Tech” companies challenging existing central banking models through private, non-governmental sponsored digital currencies. This initiative coincides with the anticipated enactment of the Guiding and Establishing National Innovation for US Stablecoins (GENIUS) Act, which seeks to provide regulatory guidelines concerning stablecoin collateralization and enforce compliance with Anti-Money Laundering (AML) regulations. The aim is not only to enhance operational efficiency but also to preserve financial sovereignty in light of Big Tech entities’ alternative currencies’ development relative to government-issued money supplies.
The consortium considers China as the most likely country to launch a global stablecoin first, as it has already been experimenting with central bank digital currency (CBDC). The development of such alternative stablecoins would be supportive for China’s e-RMB pilot program, as it can learn from global experiences before scaling up further sovereign digital currency experiments beyond domestic borders.
Once the regulatory structure is agreed upon, the banks involved will need access to legal advice concerning corporate governance protocols and liability risk assessments. The consortiums’ stablecoins are pegged to their respective national fiat currencies and can be exchanged for them at any time. They may also seek to create an additional layer of regulation on top of that provided by central banks, such as requiring all cross-border payments made through their stablecoin to be subject to know your customer (KYC) rules, making transactions more traceable and transparent.
