Stablecoins Divert Funds From Treasuries Risks Higher Borrowing Costs

Stablecoins, widely seen as a bridge between traditional finance and the crypto ecosystem, are facing increasing scrutiny over their impact on U.S. Treasury markets. Peter Schiff, a well-known economist and critic of modern financial systems, has raised concerns about the liquidity dynamics created by these digital assets. In a series of posts on X, Schiff argued that stablecoins do not inject new capital into the Treasury market but instead divert existing funds from traditional money markets [1]. This shift, he warns, could reduce the demand for long-term government bonds, which play a critical role in determining mortgage rates and broader interest rate structures [2].

According to Schiff, stablecoin issuers typically use investor funds to purchase short-term Treasury bills but retain the interest earned on those instruments—unlike traditional money market funds, which distribute yields to investors. This model, he suggests, diminishes the availability of capital for private lending and could push long-term borrowing costs higher [2]. The implications are significant, as such a trend could limit access to productive capital and disrupt credit markets more broadly.

Schiff also emphasized that stablecoins are inherently ill-suited to fund long-duration Treasuries, which are essential for maintaining a balanced and functional government debt market. He pointed out that capital tied up in stablecoins cannot be reallocated to private borrowers, thereby shrinking the pool of available capital for economic growth [1]. This dynamic, he argues, could lead to systemic imbalances that ripple through the financial system.

His perspective contrasts sharply with that of major financial institutions such as BlackRock, which has previously highlighted stablecoins as a transformative force in modern markets due to their speed, transparency, and utility. However, Schiff insists that the rapid adoption of stablecoins, particularly in light of pro-crypto legislation like the GENIUS Act, could undermine financial stability [2]. As these assets continue to gain traction, regulators face mounting pressure to determine whether they represent innovation or a growing risk to traditional financial systems.

With stablecoin usage on the rise, the debate over their economic impact and regulatory oversight is likely to intensify. Schiff’s analysis challenges conventional assumptions and underscores the need for a more critical assessment of how these tokens interact with the broader economy. While stablecoins offer efficiency and accessibility, their long-term consequences—especially in the Treasury market—remain an open question [1].

Sources:

[1] Stablecoins Won't Boost Treasury Demand, Peter Schiff ...

https://coingape.com/stablecoins-wont-boost-treasury-demand-peter-schiff-warns/

[2] Peter Schiff Warns Stablecoins Could Disrupt Treasury ...

https://coindoo.com/peter-schiff-warns-stablecoins-could-disrupt-treasury-markets/