The U.S. government’s recent enthusiasm for stablecoins—cryptocurrencies pegged directly to the dollar—is built on an uncertain economic foundation. Shortly after assuming office, President Trump unexpectedly expressed support for privately issued dollar-backed cryptocurrencies. Following his lead, the Senate swiftly passed the GENIUS Act, designed to encourage innovation and adoption of stablecoins. Major corporations, from traditional banks to retail giants like Amazon and Walmart, along with specialized firms such as Circle Internet, the issuer behind the widely used USDC, have welcomed this policy direction. USDC alone now exceeds $60 billion in circulation, underscoring the scale and potential influence of these digital assets.
Stablecoins offer tangible commercial advantages compared to traditional cryptocurrencies. Unlike speculative digital currencies like Bitcoin, stablecoins maintain value parity with the U.S. dollar, making them attractive as payment solutions. Their high transactional volume—nearly 40% of the total market cap daily, compared to less than 3% for Bitcoin—reflects their viability for frequent, everyday use. This makes stablecoins not only practical but profitable: Visa and Mastercard alone generate billions in annual revenue from transaction fees, and Circle has reportedly earned $1.7 billion last year through transaction fees and interest accrued on reserves.
Despite these clear commercial incentives, significant concerns remain. Regulators are worried about the adequacy of reserves backing stablecoins, the potential creation of unstable “pseudo-dollars,” and risks posed to the broader financial system. Additionally, stablecoins can replicate the anonymity of physical cash, raising serious anti-money laundering issues. More strategically troubling is the possibility that widespread adoption of stablecoins might diminish the Federal Reserve’s control over monetary policy and money supply management.
Curiously, the driving force behind this policy shift appears less about technological innovation and more about fiscal pressures. Treasury Secretary Scott Bessent has argued that stablecoins might generate increased global demand for U.S. Treasury bonds, lowering borrowing costs and helping to sustain the dollar’s international dominance. Such an influx of funds could theoretically offset some of the immense federal debt burden. Yet, skeptics counter that stablecoins may simply replace the roughly $1 trillion in physical U.S. currency already held abroad, rather than introducing genuinely new demand for American debt.
Compounding doubts, critics highlight that the move towards stablecoins might inadvertently shrink tax revenues, a significant concern given current estimates suggesting the U.S. Treasury already loses approximately $600 billion annually due to underreported transactions. Consequently, relying heavily on stablecoins to address fiscal gaps appears speculative at best, potentially exacerbating financial vulnerabilities.
While the business case for stablecoins remains compelling and the identified risks may indeed be manageable through robust regulatory frameworks, the justification based on fiscal alleviation is considerably less certain. Thus, the government’s passionate embrace of stablecoins, primarily anchored in hopes of reducing national debt, may prove disappointingly unstable, resting upon assumptions that could easily unravel.