How retailers like Amazon and Coles could use stablecoins to cut prices and transform payments

The Middle East may prove a short-term sideshow for investors versus retail giants' ambitions to issue stablecoins that would allow them to bypass existing banking and payments systems. 

On Friday,  Visa (NYSE: V) and Mastercard (NYSE: MA) lost $60 billion in value on reports US retail giants want to cut out their role as middlemen and save themselves billions of dollars in card processing fees each year.

The stablecoin innovation is being championed by the Guiding and Establishing National Innovation for US Stablecoins of 2025 or GENIUS Act in the US. If passed into law by Congress the act may also hurt fee streams the banks earn as payments intermediaries. 

GENIUS or pipe dream? 

The GENIUS legislation establishes a framework for launching private stablecoins pegged to the value of the US dollar. However, it's debatable whether they'll have utility, or prove more hot air from a cryptocurrency industry long on promise and short on delivery. 

In theory, an Amazon or Coles stablecoin would work as consumers use it to pay for goods and services without interchange fees charged by say Visa, or surcharge fees charged by the retailer to cover the cost of processing a payment.

In Australia, surcharge fees regularly add 1% to 1.6% to transactions and interchange fees paid by a retailer's bank to the cardholder's bank are often added into the cost of goods sold by a merchant.

Arguably then, stablecoins could take 2% of payments costs out of the system by removing middlemen. 

Shoppers using them in Amazon's eco-system or at retails giant like Woolworths or Wesfarmers could then be offered a discount at checkout.

So, stablecoins would be particularly attractive to retail conglomerates like Wesfarmers that own Kmart and Bunnings, or e-commerce players such as Costco and Amazon looking to lock consumers into their discount ecosystems.

However, like much of crypto this is good in theory, but tough in practice.

Future of money

The first issue is that consumers may incur fees to on or off-ramp a decentralised stablecoin from fiat to the retailer's token. 

In foreign exchange, for example, it's correct that you could sell Australian dollars and buy Euros for zero spread using a stablecoin. However, you cannot spend those Euros unless you then transact back into paper Euros for a fee that may prove more than the spread.

Second, society and free market capitalism have converged on single units of account and measurement, rather than private alternatives, for hundreds of years for good reason. 

Translations from feet to metres, celsius to fahrenheit, or miles to kilometres already confuse enough, without thousands of private stablecoins issued by retailers.

This is not to say an Amazon stablecoin won't work, just that it's likely to be limited to the true giants.

Tokenised assets

More generally, it might be possible to tokenise assets such as foreign fiat currencies, gold, stocks, bonds, and bitcoin in the future to work as money.

Bitcoin as an online token already works as a means of private settlement without the need for a third party like a bank or Mastercard to verify settlement. 

Stablecoins could also tokenise gold or stocks to mean I could offer 10 grams of tokenised gold to a friend for two cricket tickets.

That friend could then visit an Italian restaurant where the owner accepts tokenised gold, tokenised Nvidia stock, tokenised Australian, or US dollars.

Any payment could be made on an instant settlement tokenised basis with no need for money, bank accounts, or Visa's payment rails.

This may sound far fetched, but it's theoretically possible and likely to lead to a world where central banks remain largely as suppliers of fiat liquidity via interest rate policy. 

In other words, money is not replaced, it just becomes less common with a primary role as a stable unit of account to peg against the value of tokens or stablecoins.  

Central banks would also remain as the arbiters of cash rates to promote full employment, manage inflation, and to support national interests in times of war or pandemics for example. 

Bitcoin as money, short term push to stablecoins

It's likely the commercial banks and credit card payment giants will fight any attempts to see them pushed out of their cash cows over the short term.

Already, Facebook's Libra project was shot down by a US Congress that's widely regarded as for sale to many different vested interests.

However, the passage of the GENIUS Act and any moves by retail giants to shift to stablecoins is definitely something to watch for investors.

Finally, as to bitcoin, it still won't work as money as it's not a stable unit of account and no amount of internet memes will change this fact. 

Bitcoin's more of a liquidity bellwether and risk-on asset which means it's likely to rise against US dollars on loose fiscal policies. 

As an anecdote, last week I attended the Morgan Stanley Australia Conference and my favourite talk came from Gene Sperling a lawyer and former economic adviser to Presidents Clinton and Obama. 

Sperling's erudition impressed and he warned that President Trump potentially plans to run 7% deficits "as far as the eye can see." If this proves true, you'd have to consider it bullish for most risk assets.

And Sperling should know a thing or two about how out of kilter the global economy has become as he also reminded the audience that when he worked with President Clinton the government posted a fiscal surplus, with 4% gross domestic product growth. 

How times have changed for investors, as others like Ellerston's macro-strategist Vimal Gor also predict an "everything up" scenario for risk assets on the back of in this Rules of Investing podcast from June 6.