The U.S. Treasury is concerned about the growth of the stablecoin market, and privately issued stablecoins could eventually become state-backed central bank digital currencies (CBDCs), according to a Treasury report released Wednesday. He believes that it should be replaced by .
“Just as privately issued “wildcat” currencies were replaced by government-backed central currencies in the late 1800s, central bank digital currencies (CBDCs) are becoming stablecoins as the primary form of digital currency supporting tokenization. A report prepared by the Treasury Department’s Debt Management Office, which will likely need to be replaced, states:
Stablecoins accounted for the bulk of the 132-page report on the Treasury’s financial position for the fourth quarter of 2024. Much of it was about the massive amounts of U.S. Treasuries, also known as T-bills, that were being bought up by stablecoin issuers like Tether and Circle. The Treasury Department estimates that $120 billion worth of Treasury bills were purchased as collateral for high-yielding stablecoins. A large portion of that amount (approximately $81 billion) was purchased by Tether, the company behind USDT, the largest stablecoin in the cryptocurrency market.
Many stablecoin proponents argue that USD-backed stablecoins would strengthen the dollar by increasing demand for Treasury bills, but the Treasury Department seems unconvinced.
Wednesday’s report focused on the “common occurrences” of stablecoin depegs or complete collapses in recent years, with the Treasury saying that if T-Bill becomes increasingly integrated with the stablecoin industry, believes it could lead to a catastrophe.
Stablecoins are an important part of the cryptocurrency industry. Holding a stable value allows crypto traders to enter and exit positions without touching fiat currencies such as the US dollar. Stablecoins also serve as dollar equivalents in markets where dollars are difficult to obtain.
The Treasury Department estimates that more than 80% of all cryptocurrency transactions involve stablecoins. Tether’s USDT is the most widely traded cryptocurrency, generating $53 billion in trading volume in the past 24 hours alone.
And the increasing interconnectivity of traditional financial markets through stablecoins and Treasury bills is cause for concern, according to the Treasury Department.
“A collapse of a major stablecoin like Tether could lead to a ‘fire sale’ of holdings of US Treasuries,” Wednesday’s report said. “Currently, stablecoins represent the periphery of the treasury bill market, but as growth prolongs, the treasury bill market may be exposed to increased risk of fire sales due to a stablecoin market crash. ”
The report therefore recommended that the US government eventually intervene and replace private stablecoins with CBDCs, possibly issued by the Federal Reserve.
Over the past two years, CBDCs have become increasingly controversial in American politics. Several prominent Republicans have denounced U.S. government-issued stablecoins as “Big Brother’s digital dollar” and vowed to block their development.
Former President Donald Trump has also emerged as a vocal critic of CBDC as he campaigns for re-election this year. Despite that stance, as Decrypt first reported earlier this week, President Trump’s cryptocurrency project, World Liberty Financial, plans to issue its own stablecoin.
For months, Mr. Trump and his business partners have been framing private stablecoins as an effective means of facilitating the purchase of Treasury bills and, by extension, global domination of the U.S. dollar.
The plan may have fans, but the U.S. Treasury Department doesn’t seem to be a fan.
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