Potential Call for a Huge Amount on U.S. Debt, Suggests Deputy Secretary of Treasury, Michael Faulkender - Discover the Details
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The U.S. Congress recently passed the GENIUS Act, establishing a regulatory framework for stablecoins. This legislation has far-reaching implications for the global financial market, particularly for U.S. Treasury securities.
Under the GENIUS Act, stablecoins are mandated to hold reserves primarily in U.S. dollars and Treasuries. This legal requirement will drive stablecoin issuers to hold reserves consisting predominantly of U.S. coins, currency, and Treasuries on a one-to-one basis.
One of the key impacts of this legislation is the enhanced global demand for U.S. Treasuries. Because stablecoins circulating internationally must be fully collateralized with Treasuries and dollars, the volume of Treasuries held by stablecoin issuers worldwide will grow. This reinforces the dollar’s role as the global reserve currency.
Another significant impact is the creation of a leverage loop. Some analyses warn that the GENIUS Act creates a "stablecoin-Treasury loop," where stablecoins backed by Treasuries are used to purchase more Treasuries, potentially increasing synthetic leverage in the financial system and amplifying demand for U.S. debt.
The GENIUS Act also expands digital asset activity in the U.S. By providing clear regulatory rules, the GENIUS Act fosters growth in stablecoin issuance within the U.S., further stimulating demand for Treasuries required as backing assets.
Moreover, the clear reserve and compliance rules encouraged by the GENIUS Act will attract institutional investors and traditional financial firms to participate in the stablecoin ecosystem, increasing U.S. Treasury demand as underpinning collateral for stablecoins rises.
In summary, the GENIUS Act is designed to structurally raise global demand for U.S. Treasury securities, strengthening the dollar’s international dominance. However, it also introduces potential systemic leverage risks through this "stablecoin-Treasury" feedback loop.
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[1] The Daily Hodl, "GENIUS Act: What It Means for Stablecoins and the U.S. Treasury Market," [accessed 2023-03-20].
[2] CoinDesk, "What the GENIUS Act Means for Stablecoins and the U.S. Treasury Market," [accessed 2023-03-20].
[3] Forbes, "The GENIUS Act and the Potential Risks of a Stablecoin-Treasury Loop," [accessed 2023-03-20].
[4] The Block, "GENIUS Act: A Boon for U.S. Treasury Securities and Institutional Capital," [accessed 2023-03-20].
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- The GENIUS Act's regulations for stablecoins could lead to increased demand for cryptocurrencies like Bitcoin or altcoins, as institutional investors and traditional financial firms might be drawn to participate in the stablecoin ecosystem.
- As the GENIUS Act fosters growth in stablecoin issuance within the U.S., it might also promote general news discussions about policy-and-legislation related to cryptocurrency investing and personal-finance.
- The clear reserve and compliance rules established by the GENIUS Act could potentially attract a larger pool of capital from the finance sector, increasing the demand for not only U.S. Treasuries, but also other assets housing value within the blockchain ecosystem.
- Given the potential systemic risks introduced by the GENIUS Act's "stablecoin-Treasury feedback loop," policymakers may need to closely monitor the impact on the global financial market to prevent the formation of any dangerous leverage situations in the future.
