Dollar Stablecoins Fuel Demand for US Treasuries

A Bank of England official has suggested that dollar-linked digital tokens could support broader use of the US currency and increase demand for American government debt.

According to Carolyn Wilkins, an external member of the Bank of England's Financial Policy Committee, privately issued tokens tied to the US dollar now account for 98% of the market. These tokens, designed to hold a one-to-one value with the dollar, are being used in wider payment and settlement uses.

The growth in token supply can channel additional buying into the market for US government paper, as issuers typically place their funds into highly liquid reserve assets, which often include short-term US Treasury securities, cash, and Treasury-backed repurchase agreements. Wilkins cited Bank for International Settlements research showing that the two largest dollar tokens, USDT and USDC, together held nearly $150 billion in Treasury bills at the end of 2025 and acquired about $33 billion of those securities during the year.

However, the official also warned that if redemptions surge, issuers may need to sell reserves quickly to meet withdrawals, which could add pressure in Treasury markets already under strain and amplify volatility. Wilkins pointed to historical episodes of private money issuance, noting that convertibility at par works only when backing is high-quality and liquid, and that crisis arrangements become essential when many holders demand cash simultaneously.