Bessent bets on stablecoins to bolster demand for treasuries: FT

Bessent bets on stablecoins to bolster demand for treasuries: FT

Treasury Secretary Scott Bessent is positioning the crypto industry as a potential key buyer of U.S. government debt, according to recent discussions and signals from the Treasury department. Bessent has indicated that stablecoins, digital tokens backed by high-quality assets like Treasuries, could become a significant source of demand for U.S. government bonds [1].

The Treasury's focus on stablecoins comes at a time when many investors are growing anxious about the country's deteriorating public finances. Independent analysts predict that Washington's debt-to-GDP ratio will reach record highs in the coming decade, with borrowing accelerating due to policies implemented by the previous administration [1].

Bessent's initiative is part of the White House's broader effort to integrate cryptocurrencies into the U.S. financial system. The recent passage of the Genius Act in July has established a regulatory framework for stablecoins, requiring them to be backed by ultra-safe and ultra-liquid assets, including Treasury bills [1].

The Treasury department has been actively engaging with leading stablecoin issuers, such as Tether and Circle, to understand their potential role in boosting demand for short-term Treasury securities. These discussions have informed the department's plans to increase the issuance of short-term bills in the coming quarters [1].

Jay Barry, head of global rates strategy at JPMorgan Chase, one of the largest dealers in the U.S. bond market, supports the Treasury's view. "Secretary Bessent and the Treasury department absolutely think that stablecoins will be a real source of new demand for Treasuries," Barry said [1].

The stablecoin market, currently worth about $250 billion, is seen as a vital link between traditional and digital assets. Issuers maintain the peg of stablecoins by holding portfolios of high-quality, short-term debt. Bessent has previously stated that he expects the stablecoin market to grow to $2 trillion in the coming years [1].

The Treasury department has emphasized that its issuance plans will continue to be informed by various inputs, including those from investors, primary dealers, and the Treasury borrowing advisory committee. Regular and predictable debt issuance requires the department to be cognizant of structural market developments, which it continues to monitor closely [1].

References:
[1] https://www.ft.com/content/1914c189-b4ed-46dd-adde-106b08a68183