Stablecoins Will Not Save the US Dollar

Written by Bryan Lutz, Editor at Dollarcollapse.com:

There is a lot of hope for stablecoins – digital dollars backed by short-term US Treasury debt.

US Treasury Secretary Scott Bessent has been behind stablecoins since the beginning. He’s made several “mega-statements” claiming that stablecoins will maintain the status of the USD. By issuing stablecoins, which will most likely be purchasable by buying US Treasury bonds, or via USD, Bessent increases demand for the dollar.

Here’s Bessent earlier this year:

Bessent: We are going to keep the U.S. the dominant reserve currency in the world and we will use stable coins to do that. pic.twitter.com/MJPLRa6TJp

— Acyn (@Acyn) March 7, 2025

Bessent’s hope in stablecoins comes the power of distribution.

Instead of centralized distribution from the Federal Reserve to the US Treasury to the banks, to businesses and consumers, distribution of a stablecoin valued at $1 USD decentralizes the process. Decentralizing distribution would allow businesses everywhere to bypass the traditional fee-filled banking system and get straight to payment.

So banks, and credit cards companies have been some of the first to hop on board. They want to integrate their debt-driven credit businesses with the new stablecoin system.

CNBC reports:

“A move to launch crypto-based payments by Walmart or Amazon that bypasses the traditional payments system would send shivers through the nation’s banks and card-network giants.

With vast networks of customers and employees, troves of data and far lighter regulations, retail and technology companies have long been viewed as particular threats to banks, including regional and community lenders.

Stablecoins are currently used to store cash or purchase other cryptocurrency tokens. They are supposed to maintain a one-to-one exchange ratio with dollars or other government currencies, and are backed by reserves of cash or cashlike assets such as Treasurys.

The retailers’ final decisions would depend on a bill, called the Genius Act, which would begin to establish a regulatory framework for stablecoins. The bill recently passed another procedural hurdle but still needs to clear the Senate and House.”

If the GENIUS Act passes, Bessent sees huge demand for US Treasury bonds.

Somewhere in the realm of $2 Trillion. That’s convenient because it would open the possibility that maybe…

Maybe the US Treasury could pay for government deficit spending, or at least reduce it.

And that’s attractive to Bessent.

🇺🇸 BULLISH: Bessent says stablecoins could create $2T of demand for US Treasurys.

“We are going big on digital assets.” pic.twitter.com/FCC0MSRvHE

— Cointelegraph (@Cointelegraph) May 24, 2025

Here’s how they work:

1. Issuer Creates the Stablecoin

A private company or consortium (e.g. Circle, PayPal, or a bank) acts as the issuer. This issuer:

• Receives U.S. dollars from customers (investors, companies, crypto users).

• Uses those dollars to buy U.S. Treasury securities—typically short-term T-bills or very liquid bonds.

2. Treasury Assets Held as Reserves

• The purchased Treasuries are held in custody (often by a regulated financial institution or trust).

• These Treasuries back the stablecoin 1:1 in value, or close to it.

3. Stablecoins Minted

• Once the Treasuries are secured, the issuer mints a corresponding amount of stablecoins (often pegged to $1 per token).

• These stablecoins are issued on a blockchain (Ethereum, Solana, etc.) and circulated to users.

However, the same problem persists.

Interest payments on federal debt are growing…

And that means, even after the swath of initial demand for US Treasuries floods the market to back stablecoins everywhere, a certain amount of demand will need to be maintained to pay for this…

The Federal Debt.

In the end, stablecoins backed by US Treasuries will not solve the debt problem. They are another form of the same fiat money that supports the current system. So, if stablecoins are issued, we might expect the money bubble to get bigger for a little while longer.