regulation

A new report from the U.S. Treasury highlights stablecoin market growth and its potential impact on banking.

The U.S. Department of the Treasury this past week released a new report exploring the rapid growth of stable coins and their potential impact on traditional banking.

Titled “Digital Money,” the April 30 report noted that the stablecoin sector currently boasts a total market capitalization of around $240 billion — a 2% increase in April alone — with projections suggesting it could surge to $2 trillion by 2028.

The report addresses the effects of yield-bearing stablecoins in particular, and how they could impact traditional U.S. financial institutions, from the perspective of Treasury demand and U.S. dollar hegemony. The report also considers the impact of tokenized money market funds (MMFs).

Stablecoins could “catalyse” significant changes in the financial landscape, depending on regulatory outcomes and how the market responds, the report notes.

Impact of stablecoins on US bank deposits
One major area of impact could be bank deposits, especially if yield-bearing stablecoins are allowed to flourish in the U.S., or if stablecoins can offer other features that rival traditional financial products. Increased competition could pressure banks to raise interest rates to retain deposits or seek alternative funding sources, the report explains.

The report looks at that potential impact of both interest-bearing and non-interest-bearing stablecoins on bank deposits. It concludes that in the case that interest-bearing stablecoins are allowed to expand under U.S. regulations, the impact would be the “potential rotation from traditional deposits into stablecoins, which may offer more usability or competitive rates.”

The Treasury report highlights that U.S. regulations are still unclear on this point, noting that “within currently proposed legislation (the GENIUS Act), there are several factors that are still being determined, which influence the pace at which demand may grow.”

Notably, the report does not mention the other stablecoin bill currently before Congress, the STABLE Act, which was proposed by members of the House of Representatives. Both the GENIUS and STABLE acts passed their respective committees in the Senate and House as of last month. Just this week, however, reports surfaced that Senate Majority Leader John Thune had expedited the vote on the GENIUS Act, reportedly looking to get the bill before the Senate by Memorial Day, which falls on May 26.

As the report notes, the current stablecoin legislation before Congress does not include yield-bearing stablecoins — although the two bills differ slightly in their treatment of them. The GENIUS Act — again, the only stablecoin legislation the Treasury report references explicitly — was amended in committee to exclude yield-bearing stablecoins from the definition of “payment stablecoins,” which the bill seeks to legislate.

While stablecoin demand may have a net neutral effect on the U.S. money supply, the Treasury report added, “the attractiveness of USD-pegged stablecoins could drive currently non-USD liquidity holdings into USD.”
#USStablecoinBill #Stablecoins #USPolitics #Regulation