US Treasury states the need to reduce the market of private stablecoins

What’s new? The US Treasury Department is concerned about the growth of the private stablecoin market and believes that private stablecoins should eventually be replaced by central bank digital currency (CBDC), the digital dollar issued by the Federal Reserve (Fed). In the report, officials pointed out that issuers of private stablecoins buy government debt securities, US Treasury bonds, also known as T-bills, in large volumes.

Treasury report

What else is known? The Treasury Department’s 132-page Treasury Finance Report for the upcoming fourth quarter pays a lot of attention to stablecoins. It is noted that for all time to secure stablecoins, issuers have purchased T-bills for $120 billion, most of which ($81 billion) is accounted for Tether, the issuer of the largest USDT stablecoin in the crypto market with a capitalization of over $120,5 billion.

Earlier, the company itself also emphasized that most of the USDT reserves are represented by US Treasury bonds. Tether ranks 18th in terms of investment in US government debt, overtaking entire developed countries such as Germany and the UAE.

Stablecoins are an important component of the crypto industry, acting as a stable equivalent of fiat in digital markets. The Treasury Department estimates that more than 80% of all crypto transactions are linked to them. USDT is the most widely traded cryptocurrency, with a trading volume of $46 billion in the last 24 hours alone.

In the crypto industry and beyond, many believe that dollar-pegged stablecoins strengthen the US national currency by increasing demand for Treasury bills, but the Treasury has a different point of view.

Thus, the report notes cases of loss of peg or complete collapse of stablecoins. According to the authors, the growing interconnection of stablecoins and traditional financial markets through treasury bills could lead to disaster if such a scenario is repeated:

“A collapse of a major stablecoin like Tether could result in a ‘fire-sale’ of their U.S. Treasuries holdings. While stablecoins currently represent a marginal segment of the T-bills market, growth over time may expose the T-bills market to increased risk of fire sales due to runs in the stablecoin market.”

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The report recommends that the US government eventually replace private stablecoins with a Fed-administered digital dollar:

“In a similar manner to how privately-issued ‘wildcat’ currencies were replaced by government-backed central currencies in the late-1800s, Central Bank Digital Currencies (CBDC) will likely need to replace stablecoins as the primary form of digital currency underpinning tokenized transactions.”

The Fed has previously noted that it has no plans to launch a digital dollar in the near term. However, even before that, the asset was criticized by many politicians who pointed out the risks of surveillance and financial censorship. Such statements were made by Robert Kennedy and Senator Ted Cruz. Some states, including Florida and North Carolina, have already banned the digital dollar.

Donald Trump, if re-elected to the presidency following the November 5 election, has also promised to prevent the creation of a CBDC. Congressmen French Hill and Jake Auchincloss had already introduced a similar bipartisan bill last year.