Stablecoins Could Expand Treasury Demand and Reinforce the U.S. Dollar's Global Leadership

As blockchain technology transforms global payments, stablecoins could become a powerful new source of demand for U.S. Treasury securities while helping preserve the U.S. dollar's position as the world's reserve currency, according to a new paper by Michael Faulkender, former Deputy Secretary of the U.S. Treasury and William Longbrake Professor of Finance at the University of Maryland's Robert H. Smith School of Business.

In “Treasury Demand and the Role of Stablecoins,” Faulkender argues that policymakers should view stablecoins not merely as a financial technology innovation, but as a strategic asset capable of strengthening U.S. financial leadership, supporting Treasury markets and modernizing global payment infrastructure.

"The American people realize numerous benefits from the U.S. dollar being the world's reserve currency," Faulkender writes, noting that reserve-currency status contributes to lower borrowing costs for both the federal government and consumers while enhancing America's ability to influence global economic and national security outcomes.

The paper examines how the rapid growth of blockchain-based payment systems is creating new opportunities for dollar-denominated transactions. Stablecoins, which are typically backed by highly liquid assets such as short-term Treasury bills, offer faster, cheaper and more efficient methods for conducting international trade, cross-border payments and remittances than many traditional banking channels.

At the same time, the United States faces mounting fiscal pressures. Federal debt held by the public has increased dramatically since the global financial crisis, and continued deficit spending will require sustained demand for Treasury securities. Faulkender contends that broader adoption of dollar-backed stablecoins could help meet that need because reserves supporting stablecoins are frequently invested in Treasury bills and other highly liquid government securities.

The greatest opportunity, he says, lies outside the United States. Stablecoins could facilitate international trade settlement, lower the cost of remittances and provide residents of countries experiencing inflation or monetary instability with access to a more reliable store of value. As more transactions shift into dollar-denominated stablecoins, demand for the reserve assets backing those coins would likely grow as well.

The issue also carries geopolitical significance. "Payments evolution is also a national security question," Faulkender writes. "The dollar's reserve role is an instrument of American power." As countries such as China develop alternative payment networks, he argues that the United States must continue modernizing its own financial infrastructure to maintain its influence within the global financial system.

Read the paper “Treasury Demand and the Role of Stablecoins.”