Stablecoins to Supercharge US Treasury Demand

As blockchain technology transforms global payments, stablecoins could become a powerful new source of demand for U.S. Treasury securities while helping preserve the U.S. dollar's position as the world's reserve currency.

A paper by Michael Faulkender, former Deputy Secretary of the U.S. Treasury and William Longbrake Professor of Finance at the University of Maryland's Robert H. Smith School of Business, argues that policymakers should view stablecoins not merely as a financial technology innovation, but as a strategic asset capable of strengthening U.S. financial leadership.

The American people realize numerous benefits from the U.S. dollar being the world's reserve currency, Faulkender writes, noting that reserve-currency status contributes to lower borrowing costs for both the federal government and consumers while enhancing America's ability to influence global economic and national security outcomes.

Stablecoins offer faster, cheaper and more efficient methods for conducting international trade, cross-border payments and remittances than many traditional banking channels. They are typically backed by highly liquid assets such as short-term Treasury bills.

The greatest opportunity lies outside the United States, Faulkender says, where stablecoins could facilitate international trade settlement, lower the cost of remittances and provide residents of countries experiencing inflation or monetary instability with access to a more reliable store of value.