UBS believes that the GENIUS Act could create a new impetus for the U.S. short-term Treasury bond market, requiring stablecoin issuers to maintain 100% reserves in high-quality financial assets.
The GENIUS Act requires stablecoin issuers to maintain reserves entirely in liquid and safe assets, increasing demand for short-term Treasury bonds, thus providing the U.S. government with more room to manage public debt effectively.
MAIN CONTENT
The GENIUS Act requires 100% reserves in short-term, highly liquid assets for stablecoins.
The U.S. short-term Treasury bond market has significant absorption capacity after resolving public debt.
UBS expects the proportion of short-term Treasury bonds to remain stable.
What is the GENIUS Act and how does it affect the Treasury bond market?
UBS affirms that the GENIUS Act imposes mandatory regulations for stablecoin issuers to ensure 100% reserves in short-term, highly liquid assets, including U.S. Treasury bonds, helping this market gain additional stable demand.
The GENIUS Act clearly stipulates that reserve assets must include USD cash, short-term U.S. Treasury bonds, deposits at insured credit institutions, and repurchase agreements for short-term Treasury bonds. This regulation increases the demand for holding short-term Treasury bonds from stablecoin issuances, contributing to strengthening liquidity and stability in the U.S. financial market.
"The regulations of the GENIUS Act will help the U.S. Treasury's short-term bond market grow sustainably, contributing to extending the period of interest-bearing bond issuance while improving the ability to purchase illiquid bonds."
Urs Rohner, UBS Chief Investment Strategist, July 2024
Does the current short-term Treasury bond market have sufficient absorption capacity after resolving the public debt?
UBS assesses that the short-term Treasury bond market still has a very large absorption capacity even though the size of the government's money market fund has significantly increased after the debt ceiling issue was resolved.
According to UBS, resolving the public debt ceiling has provided stable conditions for the financial system, laying the foundation for healthy growth in the Treasury bond market, continuing to attract new capital flows. This is an important factor that helps the U.S. government effectively reserve and raise capital during the current financial phase.
How does UBS forecast the ratio between short-term Treasury bonds and interest-bearing bonds?
UBS experts expect the ratio between short-term Treasury bonds and interest-bearing Treasury bonds to remain stable in the medium and long term, creating a reasonable balance in the public debt market.
This means that the U.S. government can temporarily postpone the expansion of interest-bearing bond issuance and take advantage of opportunities to buy back old bonds with low liquidity, thereby improving the efficiency of public financial management.
"Maintaining a reasonable ratio between short-term and interest-bearing bonds helps the U.S. Treasury balance its capital sources, minimize market risks, and optimize overall debt costs."
Hans Müller, UBS Financial Expert, 7/2024
What types of assets are allowed to serve as reserves for stablecoins under the new regulations?
The GENIUS Act only accepts assets with high liquidity and good quality as 100% reserves for stablecoins, including USD cash, short-term U.S. Treasury bonds, deposits at insured credit institutions, and repurchase agreements for short-term Treasury bonds.
This helps ensure the value stability of stablecoins, enhances user confidence, and minimizes financial risks related to unsecured reserves.
GENIUS Act and its impact on the U.S. government's debt management policy?
The GENIUS Act helps the U.S. government have more room in managing debt by boosting the demand for short-term Treasury bonds, thereby increasing liquidity and the ability to buy back long-standing and illiquid bonds.
As a result, the government can extend the period for expanding the issuance of interest-bearing assets while also increasing efficiency in restructuring public debt, creating a more sustainable financial environment for the economy.
How do financial experts evaluate the impact of the GENIUS Act?
Many experts, such as Urs Rohner, CEO of UBS, and Hans Müller, financial expert, believe that the GENIUS Act will promote the healthy and stable development of the U.S. Treasury bond market, contributing to improving public debt management and minimizing systemic financial risks.
Frequently Asked Questions
What is the GENIUS Act?
The GENIUS Act requires stablecoin issuers to maintain 100% reserves of high-quality assets, helping to increase liquidity in the U.S. Treasury bond market.
Does the U.S. short-term Treasury bond market have sufficient absorption capacity for growth?
UBS assesses that this market still maintains strong absorption capacity despite the expansion of the money market fund after the debt ceiling issue is resolved.
What type of assets are stablecoins reserved with?
Stablecoins must reserve USD cash, short-term U.S. Treasury bonds, deposits at insured credit institutions, and repurchase agreements for short-term Treasury bonds.
How does this affect U.S. public debt policy?
The act helps the government extend the period for issuing interest-bearing bonds and buying back illiquid bonds, optimizing public debt management.
What do financial experts say about the effects of the GENIUS Act?
They positively evaluate it, believing that the regulation helps the Treasury bond and stablecoin markets develop stably, reducing financial risks.
Source: https://tintucbitcoin.com/stablecoin-keo-nhu-cau-trai-phieu-my/
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