Minsheng Securities: Stablecoins Not Solution to U.S. Debt

Minsheng Securities has released a research report asserting that stablecoins are not a viable solution to the U.S. debt issue. The U.S. Senate recently passed the "GENIUS" bill, which aims to link the U.S. dollar and U.S. debt to stablecoins, a move that seems to embrace the rise of decentralized digital currencies. This strategy appears to follow the logic that the expansion of the U.S. dollar credit, the rise of digital currencies, and the increased demand for stablecoins will ultimately boost the demand for the U.S. dollar and U.S. debt.

The growth of the stablecoin market value is expected to come from two main sources: the speculative, investment, or store of value demand for digital assets, and the increased demand for using stablecoins in international trade settlements. Recently, major U.S. retailers such as Walmart and Amazon have begun considering the issuance of their own stablecoins. This move could facilitate transactions and save billions of dollars in annual banking service costs.

However, Minsheng Securities argues that stablecoins are not a panacea for U.S. debt. From one perspective, the native demand for stablecoins unrelated to international payments may not significantly increase the amount of U.S. debt purchased. From another perspective, the substitutability effect of stablecoins on fiat currencies in international settlements needs to be carefully calculated. The underlying assets of stablecoins are cash and short-term bonds, but the current U.S. bond market lacks demand for medium to long-term bonds. There are only two potential solutions to this issue: the U.S. Treasury could mainly issue short-term debt in the future, but the massive annual amount of rollover is not something the U.S. and the market can bear. Alternatively, medium to long-term bonds could be forcibly included as underlying assets of stablecoins, but this would compromise the stability of stablecoins. In cases of mismatched durations, stablecoins are prone to redemption issues.