Schiff: Stablecoins Won't Boost U.S. Treasury Demand

Stablecoins: A Threat to Traditional Lending?

Economist Peter Schiff has challenged the idea that stablecoins increase demand for U.S. Treasuries. According to Schiff, stablecoins merely shift existing liquidity, posing risks such as higher long-term yields.

Stablecoins Crowd Out Lending, Increase Mortgage Rates

In a recent post on X, Schiff stated that stablecoins could displace traditional lending and drive up mortgage rates, creating broader challenges for financial markets.

Schiff explained that when investors move funds from traditional money market accounts to stablecoins, the cash is redirected rather than adding new capital to the Treasury ecosystem. Stablecoin issuers buying Treasury securities would only be duplicating purchases already made by money market funds.

The main difference, according to Schiff, is that stablecoin buyers forfeit the interest earned on those Treasuries to the issuing firms instead of receiving it themselves.

Long-Term Bond Demand at Risk

Schiff warned that stablecoin issuers primarily buy short-term Treasury instruments, which could reduce demand for long-term bonds. This is concerning because demand for long-term bonds significantly impacts mortgage rates.

A decrease in demand could push long-term yields higher, increasing borrowing costs for homeowners and businesses. Capital flowing into stablecoins could reduce capital availability for productive investment. "Money that goes into stablecoins to buy short-term Treasuries can’t be loaned out to private borrowers," he said.

Schiff’s perspective differs from that of BlackRock, which has identified stablecoins as a major force shaping the future of financial markets.

Growing Use of Stablecoins

Schiff’s comments come amid increasing stablecoin usage, especially among institutions seeking efficient dollar exposure. While many industry participants cite liquidity and transparency as benefits of stablecoins, critics like Schiff point to their potential to disrupt the traditional financial markets.

Regulators and policymakers are closely monitoring the growing role of stablecoins in the financial system, especially since the GENIUS Act was signed into law.

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