Stablecoins are being sold as safe, secure cryptocurrencies. In reality, they are shadow banking in disguise – with the same risks that nearly destroyed the global economy in 2008. Nobel Prize–winning economist Jean Tirole is worried, and so am I. If these private tokens collapse, the public will pick up the bill. It's time to call stablecoins what they are: a threat to financial stability and democracy.
This is the audio version:
This is the transcript:
Stablecoins could crash our economy.
Now, admittedly, they will probably crash the US economy before they crash the UK economy, but once one economy crashes, most follow on. And stablecoins are a fundamental threat to our financial stability at present.
Let's be clear what stablecoins are. They are simply a form of cryptocurrency that are supposedly asset-backed. In other words, if you buy a stablecoin, and $280 billion has been invested in these things at this moment, then you buy an asset that is supposedly backed by US government bonds, and therefore, they are secure.
The emptiness of Bitcoin and other cryptocurrencies is avoided, supposedly, as a consequence, but as Nobel Prize-winning economist Jean Tirole said recently, he is very, very worried by stablecoins. And he's right to be so, because although people talk about them as if they are money, they are not.
They carry no guarantee from any government. And worse still, they're not subject to any real supervision.
The danger is simple. When they collapse, and they may well do so, taxpayers are very likely to be forced to pick up the bill.
Tirole issued his warning in an interview with the Financial Times when he said that there is insufficient supervision of stablecoins. It's a point I've made on this channel before now, and I'm glad to see somebody like him joining in, because what he's saying is that the whole multi-billion-dollar stablecoin market is at risk of failing, and that could create a future financial crisis, and I really do not think he is over-egging his claim.
If depositors, whether retail or institutional, believe that they're holding safe deposits, and that is the impression that they are given, then, when everything goes wrong, they will demand a government rescue. And governments fearing contagion and public anger will, at that time, probably have no choice but to intervene.
Now, what are the parallels?
Stablecoin recreates the dangers of shadow banking that we saw before the 2008 financial crash.
They pretend to be fully backed assets, just as the bonds that were marketed at that time claimed to be. But the risk is that the US Treasury bonds, that stablecoin funds are supposedly invested in, provide too low a yield in real terms to provide the backing for those who promote these funds, and they will therefore abandon this form of asset backing and instead go for riskier assets with higher returns. At that point, the very idea of stability, which is implicit in the name stablecoin, will disappear, and one shock could collapse the whole system.
I'm already aware of the risk to US financial markets from the overvaluation of tech companies as a consequence of AI. The S&P 500 is massively overvalued, as is the FTSE 100 in the UK. But stablecoins exaggerate this risk and elevate it to a different plane.
And that's particularly the case because of the political involvement in stablecoins. Let's be clear. The US administration from Donald Trump onwards is heavily invested in stablecoins. In fact, in many cases, much of their personal wealth will be dependent upon the success of the stablecoin market.
As a consequence, they are likely to understate the need for effective regulation. Weak regulation is already a problem, but it's going to get worse with cronyism, corruption and inevitable disaster, potentially following.
And the scale of the problem is big. I've already mentioned $280 billion is now held in so-called stablecoins, and that's not trivial. It is a systemically significant sum equivalent to the size of a major bank failure. And when we know that major bank failures were the cause of the 2008 financial crisis, the world could not afford Lehman to go, as happened, then we can see that this is something that could unravel and could unravel fast, creating the pressure for a taxpayer-funded bailout.
Stablecoins, however, do something even worse than bank failures did. They actually link themselves to the US dollar. But at the same time, they are not dollars. They are not money, but they undermine, by the way in which they're issued, the ability of the government and central banks to control money.
Effectively, they're creating a parallel private currency, and they shift control over money creation to private speculators and crypto-oligarchs as a consequence. That means democratic states could lose the ability to run their own economic policies.
And when we look at who is behind these currencies, we might believe that this is deliberate because, remember, the far-right and some crypto enthusiasts in the USA are closely related. And the far-right has no love for the US state or the state in any other country , or the power that it has over economies.
So is the risk another 2008?
Could we have a repeat of the financial breakdown of that year when shadow banking nearly destroyed the global financial system?
The answer is, of course, that is possible.
Private actors now chasing high returns, just as they did in 2008, when regulators looked the other way, could exploit the current situation when regulators are going to be doing exactly the same thing under pressure from the Trump administration.
When the bubble burst, governments bailed out the system in 2008. The risk is that the same might happen now.
This risk is something that we have to understand. Finance loves to dress old risks in new language and call them innovation. Stablecoins are just another form of unregulated deposit-taking, in fact. They aren't innovative. There is nothing genuinely new about them, or in pretending that private tokens are as safe as state-backed money. All the gains go to speculators. The losses will be dumped on the public.
And stablecoins aren't just a technical issue. That risk of failure also makes them a democratic one. If private money creation replaces public authority, accountability disappears. The economic policy risk that could flow from this, as a consequence of the greed of oligarchs and their political patrons, is to the whole idea of elected government.
Stablecoins erode democratic sovereignty and hand control to unaccountable elites. So, regulators must stop pretending that stablecoins are harmless experiments. They must recognise them for what they are: systemic risks in the making. And governments should not allow the private minting of tokens that mimic safe deposits.
Every single stablecoin must come with the most prominent government-issued economic health warning because they really do require them.
The fact is, money is and must remain a public good managed under democratic authority. And that is the role of democracy. The debate is not about financial stability. It is about political power.
Who controls money creation, governments or private speculators? Stablecoin has tilted power away from democracy, at the time being, towards oligarchs and political insiders. Now we have to be honest. There is a fight on our hands as to who is to run our economies and in whose interests.
Jean Tirole is right in that sense to be very, very worried, as he said he was to the Financial Times. But you don't need to be a Nobel laureate to be so.
Stablecoins are shadow banking with new branding, cronyism, plus systemic risk, in other words.
The path that they set us on is one to bailouts, lost sovereignty, and weakened democracy.
If we value stability and democracy, governments must act now to shut them down, whatever those who are making a supposed fortune at present from those who are depositing funds, which are put at risk as a consequence, will say.
The technocrats, the oligarchs, and those who are exploiting the weaknesses of regulation have to be prevented from destroying a great deal that is of value in our societies.
Taking further action
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An interesting post thanks.
I must admit I can’t understand why anyone buys stable coins. They are said to be designed to maintain a peg to the dollar, so they don’t increase in value. I can’t see how they are a speculative asset. Their appeal, if any, is as a store of value and a means of trade. In both respects they don’t seem to function. If folks want a store of value tied to the dollar then why not directly buy US government bonds? These yield some interest. And the normal banking system offers a much easier way to pay than stable coins. So what the selling point?.
OK, I can see they are attractive to the issuers, who can make money investing the proceeds of selling them. I can see why, for example, a Trump sycophant might buy them to curry favour with Trump. And I can see why criminals might buy them to try to hide their transactions proceeds of crime. But a normal institution? Why would they buy them? Surely someone in a normal organisation who tried to buy them would be, or at least should be, sacked.
So why would anyone but criminals buy them? And why would the government bailout criminals? What am I missing?
Not a lot….
Unaccountability is the key.
Trust maybe? Trump, possibly even deliberately, is undermining faith in the dollar and driving people to look for other assets whose value they believe cannot be inflated away by governments. It is frightening.
Why use a GBP stablecoin?
Our money transmission system is already very cheap (free for most payments) and efficient (virtually instantaneous for most transactions). Historically, the use of stablecoins (privately issued currency) has been in response to a lack of Government issued currency – eg, 19th century USA – and two things; first, we don’t have a shortage of (or access to) government currency and second, those privately issued currencies rarely kept their value.
As I understand it, stablecoins are required to allow trading on exchanges that deal in other crypto coins… and that this requirement is largely to avoid those exchanges being regulated as deposit takers or as broker/dealers. Indeed, many are described as gambling organisations in order to allow their clients to avoid capital gains tax if they win.
Do we really want to encourage this activity? Certainly not – a clear “health warning” should be required and “caveat emptor” applied.
I am at a loss to understand why government would want to endorse stablecoins….. and in the UK, as far as I am aware, no arm of State has. Let’s hope it stays that way.
‘When plunder becomes a way of life, men create for themselves a legal system that authorizes it and a moral code that glorifies it.’
Frederic Bastiat 1801-1850
We know that too much of capitalism is actually theft dressed up as business. Once digital money comes on the scene, this was bound to happen in my view.
Capitalism is mostly now about moving money around – not actually ‘making money’. The money ‘made’ is always someone else’s that they have had to part with.
Given crypto de-fi (Decentralized finance) rhetoric of independence from xyz, demands for public bailout unlikely. Much is used as liquidity on blockchain(s) to trade between ‘assets’.
As I am ignorant about crypto currencies I looked at the B of E website.
It distinguishes between stablecoins and a central bank digital currency. It says it is looking creating a CBDC which they would call the digital pound.
They also claim they have rules to regulate stablecoins.
I am little wiser (not that that matters I won’t be using them ) but it gives me an uneasy feeling.
We already have digital pounds.
Their version answers no known question.
As for stablecoin, how do you regulate something deliberately designed not to be regulated?
Hence my uneasy feeling about it. These are things the B of E should know. Just as in 2007/8 they should have foreseen the crisis.
Basically I don’t trust bankers.
To add -it’s good you address this issue.
Thanks
Thanks for picking up this important issue.
Still don’t fully understand it. But I’ve recently noticed US financial analysts commenting on Tether printing $billions of USDT and injecting it into Bitcoin, every time (i.e. every few days) the value of Bitcoin drops. Can’t end well.
Also, in case of interest an article by Oliver Bullough. Haven’t been able to access
https://www.economist.com/1843/2025/07/04/how-tether-became-money-launderers-dream-currency
I am curious to understand why governments would need to bail out a collapse in one of these digital currencies. It was clear with Northern Rock and RBS that if they collapsed there would be a lot of ordinary people and businesses that would suddenly lose the accounts they use for their day to day financial activities – they would have been unable to function with huge knock-on effects on the economy.
But an artificial asset of no intrinsic worth deliberately created to attract gamblers (and enrich the creators)? Why should it affect the normal financial transactions of business, or government, or citizens? And why should any government want to pay money to those affected, any more than they compensate those who lose on the horses?
Just think about what the right wing media will scream on behalf of the losers
“The government did not save me from stable coin”
This is an excellent article by Ann Pettifor showing how the crypto world is getting wrapped into the traditional finance.
Ann’s Substack is System Change and the article is Capitalism Devours Crypto.
And do not forget that all this ‘innovative infrastructure’ is consuming vast amounts of energy to do effectively the same job that the Victorians managed with paper ledgers, and modern banking manages with relatively tiny costs.
The planet would fare much better without cryptocurrency of any sort.
The very name ‘stablecoin’ makes me think of horses and bolting – and why riders of such horses don’t really consider them bolting a good idea …..
Makes me think more of a horse by product thats very good for the garden…………….
Thanks for this valuable piece Richard as I believe Stablecoins will become a very hot topic in the years ahead.
This particular sentence stuck out to me:
“That means democratic states could lose the ability to run their own economic policies”.
Im interested to know how Stablecoins might be promoted in the years ahead with regard to facilitating international trade outside of the SWIFT system but must admit my knowledge is lacking currently.
A deeper dive on the technical aspects and mechanisms of how this might work in practice and how it could undermine democracy, would be of great value to educate us all on the dangers involved.
Let me muse on that.
For a day out a lot of thinking has been done – as will be seen in due course – and I have added your suggestion to the list of issuies to be tackled instead.
This is not looking good is it.
It’s not just stablecoin we need to be worried about; I heard the other day that the UK government recently became the second largest holder of US government debt (US Treasuries). Granted China’s been dumping theirs, but why on earth are we buying more?
It looks to me like a complete fit up, but all people want to shout bout is stopping the boats.
What is your data source?
No matter which Reply link I click, I end up here.
https://www.idnfinancials.com/news/54743/uk-overtakes-china-as-second-largest-holder-of-us-debt
The report makes clear that it is not the UK as such that holds the funds. UK fund managers do, but they might representation people anywhere.
No, UK Government holds does hold a lot of our FS reserves in US Treasury debt. But our FX reserves are dwarfed by other countries so we can’t be the second largest owner of USTs.
The UK is a large fund management centre and UST holding data will attribute to the UK those USTs held on behalf of other, foreign investors.
That sounds massively more plausible.
The claim made no sense.
Sorry, I had a bit too much going on yesterday.
I’ve just run this past Perplexity and DeepSeek (convinced one would be more biased than the other). Surprisingly, DeepSeek gave, what I thought to be the best answer (but both agreed with Richard Murphy & Clive Parry).
I would have still raised the question here as can these bots be trusted.
Which then leads on to people using bots to reply on their blogs!
Bitcoin/Stablecoin is just another way for the rich to be looked after when it all goes wrong. It’s an executive pass to be bailed out – a fast track – to welfare for the rich and bugger all for everyone else. And some criminal will walk a way with a lot of money talking piously about ‘risk’.
And to think – Farage approves of it, as does his hero in the States!
This is the makings of another disaster.
Groundhog day anyone?
Indeed
I don’t pretend to understand cryptocurrencies, but I do know that the people promoting them are not trying to improve the world in any way, shape or form. I cannot see the need for them because there is already a comprehensive range of financial instruments that are quasi-money, most of which have been around a long time. I don’t know why crypto currencies were ‘invented’ or how anyone apart from someone on the make would be dealing in them.
I don’t really trust or expect the banks and other financial institutions to rescue people who put money into crypto when it all goes to pot, which it inevitably will do.
Richard,
From your excellent article: “When they [stablecoins] collapse, and they may well do so, taxpayers are very likely to be forced to pick up the bill.” Since taxes don’t fund the government’s spending, is the aforesaid quote true?
Thank you for the ongoing education on finance and money.
There will be consequences from the diversion of resources, meaning services people need will not be provided if the government thinks it is constrained as to resources: the consequence therefore follows. It need not, but it probably will.
It’s disturbing to watch Venezuela’s turn to crypto after what happened in El Salvador. Does it still count as a trial balloon if you’re experimenting with state economies?
Sheila made a great point earlier about using inflation to drive investment into crypto (and speculative assets more generally).
[…] By Richard Murphy, Professor of Accounting Practice at Sheffield University Management School and a director of the Corporate Accountability Network. Originally published at Funding the Future […]