Stablecoin Growth Could Amplify Dollar Dominance and Volatility

Carolyn Wilkins, a member of the Bank of England's Financial Policy Committee, recently spoke about the rise of stablecoins and their potential impact on global markets. According to Wilkins, dollar-denominated stablecoins could strengthen the US dollar by making cross-border settlement easier and increasing demand for US Treasury bills.

The largest stablecoin issuers, Tether (USDt) and Circle's USDC, hold nearly $150 billion in Treasury bills, with approximately $33 billion of new purchases made last year. This growth has significant implications for the global economy, particularly as more than $300 billion is now in circulation.

However, Wilkins also noted that the relationship between stablecoin issuers and US Treasurys can be two-way. At sufficient scale, mass stablecoin redemptions could force issuers to sell Treasury bills, potentially amplifying volatility in an already stressed market.