Key Takeaways
- Citi’s Ronit Ghose warned that paying interest on stablecoin holdings could trigger bank outflows similar to those of the 1980s
- The GENIUS Act blocks stablecoin issuers from paying interest directly, but does not stop exchanges and affiliates from marketing rewards or yield schemes tied to stablecoin holdings
Ronit Ghose, head of Citi’s Future of Finance, has cautioned that allowing stablecoins to pay interest may trigger a significant shift of funds out of traditional banks, drawing comparisons to the money market boom of the late 20th century.
Ghose, said in a report on Monday that the impact of yield-bearing stablecoins could resemble the rapid growth of money market funds between 1975 and 1982, driving up credit prices. Those funds grew from roughly USD 4 billion to USD 235 billion during that period, at a time when regulated deposit rates constrained U.S. banks. Federal Reserve records show that in 1981–82, withdrawals from bank accounts outpaced new deposits by USD 32 billion.
Analysts warn that the same pattern could unfold if stablecoin holders are offered returns. According to reports, Sean Viergutz of PwC noted that banks might need to pay more to retain customers, raising funding costs and potentially making lending to households and businesses more expensive.
Banking associations have expressed concern over how current legislation treats the issue. The GENIUS Act blocks stablecoin issuers from paying interest directly, but does not stop exchanges and affiliates from marketing rewards or yield schemes tied to stablecoin holdings. The American Bankers Association and the Bank Policy Institute had argued this oversight could destabilise credit markets by encouraging deposit flight.
In a recent letter, the Bank Policy Institute said such a loophole could redirect as much as USD 6.6 trillion away from U.S. banks into stablecoins, weakening the traditional deposit base.
The warning comes as Citi is mulling a stablecoin launch. Interestingly, Chief Executive Jane Fraser confirmed in July that the bank is studying the launch of a Citi-issued stablecoin and is testing tokenised deposit services designed to give corporate clients access to round-the-clock settlement.
