- Schiff says stablecoins shift liquidity, raising yields and reducing private sector lending.
- The GENIUS Act forces stablecoin issuers to hold short-term Treasury, altering debt demand.
- BIS warns stablecoin outflows spike yields more than inflows lower them, raising risks.
Economist and gold advocate Peter Schiff recently stated that stablecoins do not increase U.S. Treasury demand but merely redirect liquidity from money market funds. He warned that this redirection may contribute to higher long-term yields and reduce lending to private borrowers.
Schiff argued in posts on X that when investors move funds into stablecoins, traditional institutional holders sell Treasury, which stablecoin issuers then buy. Consequently, the overall demand for treasury remains flat, while stablecoin buyers give up the interest that money-market investors previously earned.
He also noted that stablecoin issuers typically hold only short‑term Treasury securities—often under 93 days—potentially reducing demand for long‑term bonds, which influence mortgage rates. He added that funds tied up in stablecoins cannot be lent to businesses, potentially crowding out capital investment.
Impact on Short-Term Treasury Yields
Recent research supports parts of Schiff’s argument. A May 2025 working paper by Ante, Saggu, and Fiedler found that Tether held about 1.6% of all outstanding U.S. Treasury bills—roughly $98.5 billion—placing it in a high‑impact regime where each 1% market share rise correlated with approximately a 6.3% drop in one‑month T‑bill yields. That translated into about The reduction of 24 basis points in yields results in approximately $15 billion in annual interest savings for the U.S. Treasury.
The Bank for International Settlements also found that stablecoin inflows modestly lower short-term yields, whereas outflows trigger sharper upward movements. According to their analysis, redemptions raise yields two to three times more than purchases lower them. This pattern increases the risk of volatility during market stress.
Growth in Demand for Treasury Bills
Industry analysts report that stablecoin demand influences Treasury issuance. At a June money market conference in Boston, State Street Global Advisors’ CEO Yie‑Hsin Hung noted stablecoin reserves invested in Treasury bills or short-term repurchase agreements currently account for around $200 billion, nearly 2% of the overall Treasury bill market. She warned that stablecoin growth may outpace Treasury supply, forcing structural shifts in issuance patterns.
Bank of America projects stablecoin supply could rise by $25‑75 billion in the near term due to regulatory clarity under the GENIUS Act, driving higher demand for short‑term Treasury. BofA estimates that each $1 leaving traditional deposits for stablecoins could generate roughly $0.90 in additional Treasury demand.
Regulation Focuses Demand on Short‑Term Treasuries
Congress recently passed the GENIUS Act, making the U.S. the first country with a federal stablecoin regulatory framework. The law mandates that all stablecoins must be backed 1:1 by cash or highly liquid assets including Treasury bills maturing in 93 days or less. It further prohibits issuers from earning interest on deposits. Additionally, the framework includes periodic reserve disclosures and annual audits for large issuers.
Furthermore, the Treasury Borrowing Advisory Committee (TBAC) has acknowledged that stablecoin issuance may shape funding decisions, especially if the inflows shift Treasury demand from banks and money‑market funds rather than generate net new demand. The committee members acknowledged the possibility of offsetting effects but remained cautiously optimistic that stablecoin growth could support short‑maturity issuance strategies.
Related: Are US Dollar Stablecoins Undermining Europe’s Monetary Sovereignty?
Broader Implications for Markets
If Schiff’s view holds, stablecoin‑linked Treasury purchases may not reduce funding costs but could create distortions in the yield curve and limit credit availability in private markets. Long‑term rates might rise if demand shifts entirely to short‑duration bills.
Conversely, proponents argue that expanding stablecoin demand may provide a stable buyer base for Treasury, though they warn that it could complicate monetary policy transmission and elevate systemic risk during rapid outflows.
