While Stablecoins Drive Demand for US Debt — Are They a Trojan Horse for CBDCs?

The recently passed GENIUS Act, signed into law on 18 July 2025, outlines a clear framework for stablecoins, covering consumer protection, regulatory oversight and reserve backing. Notably, it mandates that US stablecoins be backed 1:1 by low-risk, liquid assets — namely, US dollars or short-term Treasury bills.

By anchoring reserves in Treasuries, issuers not only access yield but also gain the benefit of collateralised holdings with minimal duration risk. Unsurprisingly, this has positioned short-term US government debt as the preferred asset to underpin these digital currencies.

The result? A surge in demand for US debt at the short end of the yield curve — a seemingly “genius” move by a government grappling with record debt levels.

With the Treasury issuing short-term bills aggressively this year to refinance its obligations, the GENIUS Act arrives with impeccable timing. As stablecoins proliferate, the volume of Treasury bills required to back them rises sharply, opening up a vast new market for US government debt — at a time when foreign central banks are cooling on Treasuries and ratings agencies are sounding the alarm.

While this benefits Washington, it comes at a cost. Liquidity is being drawn out of other economies and funnelled into US assets.

Not surprisingly, major economies are pushing back. The US is reportedly considering a $20,000 cap on stablecoin holdings for its citizens. The UK has adopted similarly strict limits, and China is expected to implement a full-scale ban. BRICS nations may well follow suit.

In the near term, elevated T-bill issuance supports global liquidity. But the longer-term impact could be profound, especially as stablecoins go mainstream.

Beneath the surface, this new legislation may be paving the way for something more insidious: widespread adoption of central bank digital currencies (CBDCs). If stablecoins are a stepping stone, the destination could be a financial system where users become de facto buyers of US government debt — while their funds are trackable and controllable in real time.

Amid the hype surrounding stablecoins, the critical question remains: are they simply a Trojan horse for CBDCs?