U.S. Treasury Department Warning: Is it Time for CBDC?

U.S. Treasury Department Concerned About the Rise of Stablecoins

The U.S. Treasury Department has expressed concern over the rapid development of the stablecoin market, suggesting the need to replace privately issued stablecoins with state-backed central bank digital currencies (CBDC). A report published on Wednesday by the Treasury’s Debt Management Office addresses financial stability and the growing dominance of stablecoins.

The Development of Stablecoins and the Need for Introducing CBDC

The Treasury Department’s report emphasizes the analogy to history, in which privately issued currencies were gradually replaced by government central currencies. According to the document, significant attention has been given to the increasing amount of U.S. Treasury bills being purchased by stablecoin issuers, including popular ones like Tether and Circle. It is estimated that stablecoins serving as profit-making collateral have bought Treasury bills worth $120 billion, of which nearly $81 billion was held by Tether.

The Importance of Stablecoins in the Cryptocurrency Industry

The Treasury Department highlights that stablecoins play a significant role in the cryptocurrency industry, enabling investors to enter and exit positions without directly using traditional fiat currencies, such as the U.S. dollar. Additionally, stablecoins serve as a dollar equivalent in markets where access to physical dollars is restricted.

Over 80% of cryptocurrency transactions involve stablecoins, with Tether’s USDT being the most actively traded cryptocurrency, generating significant trading volume.

Treasury Department’s Concerns and Suggestions Regarding CBDC

According to the Treasury Department, the increasing ties between stablecoins and traditional financial markets, especially through Treasury bills, raise concerns. There is fear that a potential crisis with a large stablecoin, such as Tether, could result in a mass “sell-off” of held U.S. Treasury bills. Therefore, the Department recommends replacing private stablecoins with CBDC, which could be introduced by the Federal Reserve.

Controversies Surrounding CBDC in American Politics

Over the past two years, CBDC has become a controversial topic in American politics. Republican lawmakers express concerns about a government-issued stablecoin, referring to it as the “digital Big Brother dollar.” Even former President Donald Trump criticized the concept of CBDC during his election campaign. Despite this, Trump’s cryptocurrency project, World Liberty Financial, envisions launching its own stablecoin.

The U.S. Treasury Department has strongly opposed private stablecoins, emphasizing the need to migrate towards state-backed CBDC.