Economist: Digital Currencies Compete with Banks for Financial Dominance

SadaNews - Digital currencies are no longer a marginal sector that can be ignored or ridiculed by Wall Street, but have transformed - according to an analysis published by The Economist - into a financial and political power that threatens the historical position of banks within the US financial system, and even within the Republican Party itself.

The Economist begins its report by recalling the misattributed quote to Mahatma Gandhi: "First they ignore you, then they mock you, then they fight you, then you win."

This phrase was never actually said by Gandhi, but it has become a common slogan in the cryptocurrency industry, which believes it has actually moved from a phase of marginalization to a phase of influence.

Regulatory Breakthroughs and Political Boom

The Economist points out that 2025 was an exceptional year for both banks and the digital asset industry, as cryptocurrencies benefited from the legal clarity provided by the "Genius Act" enacted in July, which offered a clear regulatory framework for stablecoins.

In contrast, bank stocks have risen by about 35% since Donald Trump won the presidential election, driven by expectations of friendlier regulations.

The newspaper notes that very few bankers, even among those who oppose Trump politically, prefer the regulatory approach that prevailed during Joe Biden's administration, reflecting the extent of discomfort caused by previous regulatory strictness.

However, this apparent improvement conceals escalating tension, as The Economist believes that "the threat from digital currencies has become much greater than bankers had thought," and that the traditional stature of banks as the "financial aristocracy" of the Republican Party has become less entrenched with the rise of new players in the world of cryptocurrencies.

Stablecoins... A Gap of Concern for Banks

Stablecoins are the primary source of urgent concern for banks, as while the Genius Act prohibits these currencies from paying direct returns to holders, in an attempt to prevent the draining of bank deposits, The Economist indicates that there is a "clear circumvention" of this restriction.

Companies like Circle, which issues the USDC currency, can share their revenues with trading platforms like Coinbase, which in turn pays "bonuses" to users.

Although these payments are not officially called returns, banks see them as a direct undermining of the main purpose of the legislation, and are pressuring to close this loophole.

Concerns are not limited to the issue of returns; in October, Christopher Waller - a member of the Federal Reserve Board and a potential candidate for its presidency - caused alarm in banking circles when he hinted at the possibility of granting more companies direct access to central bank payment systems.

Although he later retracted his statement, confirming that such access would still depend on obtaining a banking license, the indication was enough to raise concerns.

Banks have already lost part of their central roles in lending and brokering in favor of private credit and market makers outside the banking system.

Invasion of the Banking System

The Economist highlights that the most significant shift occurred on December 12 of this year, when a US banking regulator approved granting "national credit bank" licenses to five digital financial companies, including Circle and Ripple.

While these licenses do not allow for accepting deposits or lending, they enable these companies to provide custodial services at the national level instead of relying on fragmented licenses at the state level.

The newspaper affirms that banks pressured strongly to prevent the passage of these licenses, but failed; according to The Economist, while each of these steps may seem limited when viewed in isolation, "when taken together, they pose a serious threat to traditional banks."

It adds that banks have already lost some of their central roles in lending and brokering in favor of private credit and market makers outside the banking system, and they are "unprepared to lose more."

Decline of Banks' Political Influence

The Economist believes that the core of the problem lies not only in regulation but in politics, as the cryptocurrency industry has come to view the preferential treatment of banks as creating an uneven playing field that harms competition. Although this argument is principled, the newspaper describes offering "bonuses" instead of returns as a "blatant circumvention of the rules."

More alarmingly, according to The Economist, lawmakers who banned returns months ago did not intervene to stop these practices, revealing the "sharp loss of banks' political influence."

Banks are no longer the most important financial circle within the Republican Party, as the cryptocurrency industry has found a strong foothold within the new anti-elitist right-wing movements.

Regulatory circumvention reflects the cryptocurrency industry's rapid adaptation to legal limitations (Reuters)

The newspaper points out that political action committees within the cryptocurrency industry possess "hundreds of millions of dollars" ready to spend in the 2026 midterm elections, enhancing their ability to influence.

As a result, it is no longer certain that any clash between the interests of banks and those of this industry will end in favor of banks.

Banks are no longer the most important financial circle within the Republican Party, as the cryptocurrency industry has found a strong foothold within the new anti-elitist right-wing movements.

The Paradox of Reliance on Democrats

In a notable paradox, The Economist observes that bankers, who have become frustrated with the strictness of the Biden administration, now find themselves relying on a group of concerned Senate Democrats regarding the "covert payment" of stablecoin returns and the risks of money laundering.

Thus, the largest American banks find themselves in their battle against granting banking licenses to cryptocurrency companies, allied with labor unions and research centers from the center-left, in a scene that the newspaper sarcastically summarizes: "Just as Gandhi did not say the first quote, he also did not say: The enemy of my enemy is my friend."

Source: The Economist