- US Treasury’s advisory group discussed how stablecoins could impact Treasury demand, focusing on the possibility of stablecoins offering interest.
- Stablecoin growth could lead to significant investment in short-term US Treasuries, potentially reaching $1 trillion by 2028 if current trends hold.
- Regulators remain cautious about allowing stablecoins to pay interest due to concerns about effects on banks and the broader financial system.
The US Treasury’s Borrowing Advisory Committee (TBAC) recently evaluated how stablecoins—digital currencies tied to the US dollar—could affect demand for short-term Treasury securities. The committee’s meeting explored whether these stablecoins might pay interest in the future, a topic raised as lawmakers consider new legislation.
According to the official minutes from the meeting and a presentation to TBAC, committee members discussed the differences between interest-bearing and non-interest-bearing stablecoins. The group questioned whether rising stablecoin use would lead to new investment in US Treasury securities, or simply shift funds away from banks and money market mutual funds.
The committee cited data from Standard Chartered, estimating that if stablecoins do not pay interest, their global market could reach $2 trillion by 2028. In April, stablecoins were valued at $234 billion, with about $120 billion invested in short-term US Treasuries. Standard Chartered’s forecast suggests stablecoin-driven Treasury investments could approach $1 trillion by 2028. The report noted, “If stablecoins were to offer interest, the figure could be quite a bit higher, although no forecast was provided.” This would make up a sizable part of the $6.4 trillion Treasury Bill market.
Current regulatory proposals, such as the latest version of the Senate’s GENIUS Act, include clauses that prohibit stablecoin issuers from paying interest unless approved by the Senate Banking Committee. The President’s Executive Order supports wider use of US dollar stablecoins overseas, with the goal of boosting demand for US Treasuries, according to statements by White House official David Sacks.
The TBAC report also explains that most global stablecoin regulations avoid allowing interest payments due to concerns that bank deposits—totaling $6.6 trillion—could shift into stablecoins. This movement could reduce funds available for bank lending or increase borrowing costs. The committee’s presentation addressed possible new roles for banks and financial institutions, such as issuing stablecoins or managing their reserves.
Additionally, TBAC discussed proposals to let stablecoin issuers access the Federal Reserve or deposit insurance, which could help prevent stablecoin price instability. The report also highlighted political developments, noting that several Democratic lawmakers withdrew support for the GENIUS Act after the TBAC meeting, even though the act still bans stablecoin interest payments. This could delay the bill’s progress in the Senate.
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