Whereas Stablecoin supporters in the Trump administration and in the U.S. Congress describe it as a means to support U.S. debt, the exact contrary is true: If the GENIUS Act deregulation goes through, the U.S. Treasury will be forced to support the proliferation of digital, private Stablecoin currency, in a way that can create a liquidity shortage and make U.S. government debt less sustainable.
A new paper by Yesha Yadav of Vanderbilt University and Brendan Malone (independent), makes the above clear.
In the chapter entitled “Stablecoin risks for the U.S. Treasury Market,” the authors explain that “the Treasury market is now tasked with directly supplying the assets needed for paying out on privately issued dollar-denominated money claims designed to anchor a global, blockchain-based dollar payment system.”
This has major implications. First, it requires “ensur[ing] that Treasury market liquidity is sufficient to support mass redemptions of stablecoin claims as well as provid[ing] assurance that such capacity is readily available. It is also conceivable that high growth of the stablecoin market puts the liquidity of the Treasury market under strain, with policy potentially primed to prioritize stablecoin redemptions, given their preeminent future role in U.S. dollar global payments.” Concretely, this means that the Treasury is forced to issue more and more short-term bonds, in order to provide Stablecoin issuers with the needed amount of liquidity.
What if there is—and there will be—mass liquidation of Stablecoins? Currently, the Stablecoin market is $200 billion, whereas the daily average traded amount of Treasury on the secondary market is $900 billion. A mass liquidation won’t cause a massive disruption. But it is calculated that through the deregulation, the Stablecoin market will reach a daily transaction volume of $2 trillion by 2028.
(As EIR has reported, BlackRock alone wants to invest $16 trillion in Stablecoins by 2030).
Unfortunately, the authors of the paper do not reject the Stablecoin idea, but call on policy makers to introduce regulation such that mutual benefits are amplified and risks are reduced.
