Schiff Warns Stablecoins Redirect Capital From Treasuries Risking Higher Yields

Economist Peter Schiff has raised concerns over the potential effects of stablecoins on the U.S. Treasury market, challenging the widely held belief that they increase demand for government securities. Schiff argues that stablecoins do not introduce new liquidity to the market but instead redirect existing capital away from traditional Treasury investments, which could lead to higher long-term interest rates and increased borrowing costs for the U.S. government [1]. His analysis highlights a significant shift in capital allocation and underscores the growing risks associated with the expanding role of stablecoins in the financial system [2].

Schiff has emphasized that funds flowing into stablecoins are effectively pulled from traditional money markets, reducing the liquidity available for long-duration Treasury securities [3]. This reallocation of capital could create imbalances in credit markets and disrupt the natural flow of funds that traditionally supports government debt issuance. “Money that goes into stablecoins is money that isn’t going into Treasuries,” he stated, pointing to the indirect effects this shift could have on inflation and monetary policy [4]. With stablecoin reserves in Treasuries rising, the debate over their influence on financial stability has intensified, particularly as concerns about systemic risk resurface [5].

The implications of Schiff’s critique take on added significance following the U.S. Federal Reserve’s July 2025 meeting, during which it opted to maintain interest rates amid ongoing economic and political uncertainties [6]. Fed Chair Jerome Powell emphasized the importance of timing in any rate-cutting decisions, warning that premature reductions could undermine inflation control efforts [7]. Schiff’s warnings contribute to a broader conversation about whether digital assets like stablecoins are complementary to traditional financial instruments or if they represent a structural challenge to existing market mechanisms.

Schiff also warned that the growing dominance of stablecoins could make it more difficult for the U.S. government to finance long-term obligations, especially as demand for Treasuries becomes increasingly volatile. He noted that stablecoins are ill-suited to support long-term debt issuance, which could weaken the resilience of the Treasury market during economic downturns. This, in turn, could ripple through broader credit markets, affecting borrowing costs for both households and businesses [8]. His skepticism reflects a broader caution about the evolving role of digital assets in the global financial system.

Recent market movements reinforce the sensitivity of capital flows to central bank policy. Following the FOMC meeting, both traditional and digital assets saw a decline, with the S&P 500 and Bitcoin reacting to the Fed’s cautious stance and lack of clarity on rate cuts [9]. While speculation about a potential September rate cut remains strong, the uncertainty highlights the complex interplay between digital and traditional financial systems.

Schiff’s insights underscore the need for a closer examination of how stablecoins are shaping capital flows and whether they are enhancing or distorting the traditional financial landscape. As digital assets continue to evolve, their impact on Treasury markets and broader financial stability will remain a critical concern for investors, regulators, and policymakers.

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Source:

[1] Peter Schiff Warns Stablecoins May Curb Treasury ... (https://www.ainvest.com/news/peter-schiff-warns-stablecoins-curb-treasury-demand-boost-long-term-yields-2507/)

[2] Stablecoins Won't Boost Treasury Demand, Peter Schiff ... (https://coingape.com/stablecoins-wont-boost-treasury-demand-peter-schiff-warns/)

[3] Peter Schiff Challenges Stablecoin Impact on Treasury ... (https://www.cryptotimes.io/2025/07/31/peter-schiff-challenges-stablecoin-impact-on-treasury-demand/)

[4] Stablecoins Divert Funds From Treasuries Risks Higher ... (https://www.ainvest.com/news/stablecoins-divert-funds-treasuries-risks-higher-borrowing-costs-2507/)

[5] FOMC Meeting July 2025 Highlights: Key Changes and ... (https://coingape.com/trending/fomc-meeting-july-2025-highlights-key-changes-and-market-impact/)

[6] Peter Schiff Warns Stablecoins Could Disrupt Treasury ... (https://coindoo.com/peter-schiff-warns-stablecoins-could-disrupt-treasury-markets/)

[7] Peter Schiff's Warning: "Stablecoins May Shrink the Traditional ... (https://www.eblockmedia.com/news/articleView.html?idxno=24932)