Stablecoins Bolster Short-Term Debt Market, But Can't Fix Long-Bond Woes

The US Treasury Department is relying on stablecoins to fund its short-term debt needs, but these digital dollars can't address the government's $28 billion long-bond problem.

The GENIUS Act requires permitted issuers to maintain identifiable reserves of at least one dollar for every payment stablecoin outstanding. Eligible assets include US currency and Federal Reserve balances, bank deposits, Treasuries with a maturity of 93 days or less, overnight repo and reverse repo, government money-market funds invested in these instruments, and qualifying tokenized versions.

Circle's reserve behavior provides a live example of short-duration reserve activity. In its second-quarter filing, the company reported $73.269 billion in USDC circulation on June 30, with $60.717 billion held in the Circle Reserve Fund. The majority of this fund consisted of overnight Treasury repo and Treasuries, keeping Circle's duration close to the front end of the market.

The Treasury Borrowing Advisory Committee has noted that stablecoin issuance could add short-maturity Treasury demand. However, part of this effect may be displaced when users move balances out of bank deposits or other cash-like instruments already financing bills.