This week, I participated in a fascinating discussion on stablecoins and the concept of the singleness of money. The conversation centred around one question: is monetary singleness an absolute necessity, or should regulators allow for flexibility in its application?

What are stablecoins?

The Bank of England defines stablecoins as private settlement assets which may be represented on a programmable ledger. They aim to maintain a stable value relative to a fiat currency by holding backing assets such as cash, money market funds or other high-quality liquid assets, commodities, cryptoassets, or foreign currencies. Alternatively, some stablecoins achieve stability through overcollateralisation or algorithmic protocols.

In essence, a stablecoin should be interchangeable at par with the fiat currency it represents – one unit of a stablecoin should always equal one unit of its fiat counterpart.

Why now?

Although stablecoins have existed for over a decade, their adoption has expanded exponentially. Until recently, they were predominantly used as a settlement asset for transactions in cryptoasset markets, functioning as a bridge between traditional ‘fiat’ money and the crypto ecosystem, facilitating easier entry and exit from digital assets.

Over time, their broader utility has become clearer. Acting as not only a bridge between traditional finance and crypto, stablecoins facilitate a faster, cheaper, more transparent form of money transfer. As a tokenised, on-chain proxy for fiat money, stablecoins enable rapid settlement, bypassing the delays and complexities of the correspondent banking system.

According to a new report by Artemis and Dune, the stablecoin market experienced significant expansion in 2024. The total supply increased by 63%, rising from $138 billion to $225 billion between February 2024 and February 2025, with $35 trillion in transfer volume over that period. This rapid growth underscores the increasing demand for stablecoins as an alternative form of digital money.

Why stablecoins?

Users are increasingly recognising the advantages of stablecoins, leading to a diversification of their use cases. Faster settlement means that all forms of payment or money transmission are enhanced, including remittances, cross-border transfers, and trade settlements. Beyond payments, stablecoins also enable access to certain currencies that might otherwise be difficult to obtain. For example, in countries where US dollars are not readily available, USD-backed stablecoins can act as a practical substitute.

Are stablecoins money, and why does it matter?

Stablecoins are already functioning as a new form of money. Money, as traditionally defined, should fulfil three key functions. It should act as a medium of exchange, a unit of account, and a store of value.

But the fundamental concept at the heart of money is trust.

We trust that a government will back the different forms of money circulating in an economy and we do so because money is supported by regulatory frameworks and policy mechanisms to ensure stability. For example, initiatives like the UK’s Financial Services Compensation Scheme guarantee the first £85,000 of commercial bank deposits. Banks are also subject to safety measures including prudential, conduct, and resolution regimes. Such measures help to achieve the singleness ideal – that is, that the £1 in my pocket is always the same as the £1 in my bank account, or the £1 in central bank deposits. In this way, private commercial bank money is exchangeable at par with central bank ‘public’ money.

If stablecoins are money, do they need to achieve singleness?

The emergence of new forms of private money, such as stablecoins, raises challenges for monetary singleness. When traded on the secondary market, stablecoins may lose their ‘peg’, meaning that they may depart from a 1:1 exchange rate with their fiat counterpart. To what extent does this deviation matter, and which policy decisions can ensure stablecoin stability so that departures from par are either negligible or nonexistent?

Regulatory measures for commercial banks serve as safeguards against instability in fractional banking systems, ensuring that depositors can withdraw their funds despite banks holding only a fraction of their deposits in cash reserves. Similar safeguards must be considered for stablecoins to maintain confidence in their value. Potential solutions include high-quality liquid backing assets, trusted custodians, robust governance requirements, and regulatory oversight similar to that applied to commercial banks.

Theoretical or real world ideal?

In practice, businesses are already using stablecoins for various financial activities, in similar ways to other forms of money. Policymakers must weigh the potential risks against the tangible benefits that stablecoins provide. While minor fluctuations from par value may occur, the trade-off could be a faster, cheaper, and more accessible financial instrument that enhances global economic participation.

As the financial landscape evolves, stablecoins will likely continue to play a critical role in bridging traditional and digital finance. Ensuring their stability and alignment with established monetary principles will be essential for their long-term integration into the broader financial system.

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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Readers should conduct their own research and consult with professional advisors before making any investment decisions.