US Turns to Stablecoins as Foreign Demand for Treasury Bills Slows

Foreign investors pumped $133.5 billion into US financial markets in June, but their appetite for Treasury bills was surprisingly weak.

In fact, they sold a net of $29 billion of these short-term government securities, which is roughly 2% of the previous month's holdings.

The split in investor demand helps explain why Washington is pivoting towards stablecoin issuers to back US debt. These digital tokens can be pegged to the value of the US dollar and backed by Treasury bills or other cash-like assets.

Tether, one of the largest stablecoin issuers, has over $114 billion in direct Treasury bill holdings, while Circle's $USDC is backed by a government money-market fund managed by BlackRock.

The Treasury Department is formalizing a framework that would allow regulated payment stablecoins to hold liquid reserves, which could become a major source of demand for US government debt.