Bridging two worlds: Why stablecoins can be the missing link

The limitations of current banking systems have been apparent for a long time. Traditional international transfers often involve manual multiple intermediaries and complicated processes, resulting in delays, high costs, and operational inefficiencies. While solutions exist to address cross-border transaction cost and speed in major trade corridors such as between the US, Europe and Asia, significant barriers to financial inclusion persist across Asia and the Middle East.

Recent data from the Financial Stability Board shows that MSMEs in South Asia and the Middle East and North Africa region face the greatest challenges in accessing cross-border payment systems, with some lower-middle-income jurisdictions seeing reduced access in 2024. This access gap affects a growing trading bloc that is expected to reach $757 billion by 2030, according to an Asia House 2023 Report. For businesses operating across these time zones, such delays create significant working capital constraints and opportunity costs.

This challenge is particularly acute for the growing digital economy, which prizes quick delivery and a multitude of counterparty relationships. A Southeast Asian gaming company serving Middle Eastern players, for instance, faces significant hurdles in processing micro-transactions efficiently. Chinese e-commerce sellers peddling their products halfway across the world lack an efficient way to collect and settle in different countries in different currencies.

Stablecoins solve banking limitations

Enter stablecoins, which merge the stability of traditional currencies with blockchain efficiency to address modern transaction banking challenges. Stablecoins initially existed as a means of interfacing between fiat and the digital asset world, used primarily for converting in and out of crypto. Today, they are used increasingly to enable near-instant cross-border transactions for businesses, reducing settlement risk and improving capital efficiency while offering financial institutions a compliant way to engage with digital assets.  

Stablecoin settlements are projected to surpass $5.4 trillion in 2024, reflecting a path towards mainstream adoption. Many companies are already turning to stablecoins to bypass existing international rails, but not without risk. The largest and most commonly used stablecoin, Tether, still faces significant regulatory and compliance uncertainty.  Conversion in and out of Tether, while easily accessible, lacks regulated on-off ramp channels.  

Banks can enable stablecoin use

Banks should have a major role to play in leveraging and enabling the use of stablecoins for transactions and settlement. There have been overtures by major banking players in Europe and Japan to issue bank deposit-backed stablecoins. Banks are well-positioned to operate this in a regulated and compliant way, while possessing the cross-border banking use cases to utilise the stablecoin.

When traditional banking fully embraces digital assets, customers can own stablecoins as a holding, a means to transact locally, globally and to access crypto markets, all in one place, as it should be. The ability to process cross-border transactions with six-nines reliability with real-time compliance monitoring provides a formidable tech foundation which all banks need to invest in. Paired with institutional-grade custody solutions and multi-layer security protocols, this creates a blueprint for compliant digital asset integration into traditional banking services.

Stablecoins create financial integration

Looking ahead, the integration of stablecoins into traditional banking infrastructure represents more than a payment solution. It signifies a gateway to programmable finance and real-time settlements. When paired with strong risk management and institutional-grade infrastructure, stablecoins can streamline capital markets, reduce friction in global trade, and improve financial inclusion. The future lies in creating a unified ecosystem that leverages the strengths of traditional and digital finance.

Clear regulatory frameworks are needed to promote innovation while providing stability, ensuring sustainable growth and maintaining market integrity. This requires collaboration among traditional financial institutions, fintech innovators and regulators to establish standards that protect consumers while enabling growth.  We recognise the need to focus on sustainable infrastructure over short-term gains.

By constructing a secure, regulated bridge between conventional banking and digital assets, we can cultivate a more efficient, inclusive, and innovative financial system for all participants. The transformation of global finance is underway, and the future belongs to those who shape it wisely.

Jireh Chua is the chief development officer and executive vice president of Singapore Gulf Bank (SGB), a digital bank backed by Bahrain's sovereign wealth fund Mumtalakat and Whampoa Group.