According to Decrypt, the U.S. Treasury Department has expressed concerns about the growing stablecoin market and suggests that privately issued stablecoins should eventually be replaced by a state-backed central bank digital currency (CBDC). This recommendation was detailed in a Treasury report released on Wednesday, prepared by the Office of Debt Management. The report draws parallels between the replacement of privately-issued 'wildcat' currencies by government-backed central currencies in the late 1800s and the potential need for CBDCs to replace stablecoins as the primary digital currency for tokenized transactions.
The 132-page report on the state of the Treasury’s finances in Q4 2024 highlights the significant amount of U.S. Treasuries, or T-bills, purchased by stablecoin issuers such as Tether and Circle. The Treasury estimates that $120 billion worth of T-bills have been bought to serve as yield-bearing stablecoin collateral, with Tether alone purchasing nearly $81 billion. Despite arguments from stablecoin advocates that U.S. dollar-backed stablecoins strengthen the dollar by increasing demand for T-bills, the Treasury remains unconvinced. The report emphasizes the risks associated with the common occurrence of stablecoins depegging or collapsing, which could lead to a disaster if T-bills become increasingly integrated with the stablecoin industry.
Stablecoins play a crucial role in the crypto industry by maintaining a steady value, allowing traders to enter and exit positions without using fiat currency. They also serve as dollar equivalents in markets where dollars are scarce. The Treasury estimates that over 80% of all crypto transactions involve a stablecoin, with Tether's USDT being the most widely traded cryptocurrency, generating $53 billion in trading volume in the last 24 hours alone. The increasing interconnectivity of stablecoins and traditional financial markets through T-bills is a cause for concern, as a collapse of a major stablecoin like Tether could result in a 'fire-sale' of their U.S. Treasuries holdings. The report warns that while stablecoins currently represent a marginal segment of the T-bills market, their growth could expose the market to increased risk of fire sales due to runs in the stablecoin market.
The report recommends that the U.S. government eventually replace private stablecoins with a CBDC, presumably issued by the Federal Reserve. However, the development of CBDCs has become a controversial topic in American politics, with several prominent Republican lawmakers pledging to prevent their development and criticizing a U.S. government-issued stablecoin as 'Big Brother’s digital dollar.' Former president Donald Trump has also emerged as a vocal critic of CBDCs while campaigning for re-election, despite his crypto project, World Liberty Financial, planning to issue its own stablecoin. Trump and his business partners have promoted private stablecoins as a means to bolster the purchase of T-bills and the dominance of the U.S. dollar worldwide, a plan that the U.S. Treasury does not support.