Stablecoins Could Expand Dollar Use and Concentrate Demand for Treasury Bills
Nellie Liang of the Brookings Institution argues that stablecoins could widen global access to dollar-denominated value and add demand for Treasury bills, but only if their growth expands the dollar market rather than shifts money from existing dollar instruments. In her paper with Brent Neiman, Liang contends that the potential gains in payments and dollar use carry policy costs: regulators must address illicit-finance risks and possible losses of bank lending, while Treasury must account for reserve demand concentrated in short-term debt.
Stablecoins could extend the dollar’s reach—but only by moving policy problems into new places
Nellie Liang sees stablecoins as a potentially consequential new channel for dollar use: private digital money that can move globally, settle near real time, operate around the clock, and draw on demand for dollar-denominated reserve assets. If that channel expands, it could support the international use of the dollar and increase demand for Treasury bills.
Those outcomes are possible, not automatic. They depend on where stablecoin growth comes from, what assets issuers hold against their coins, whether banks lose deposits that support lending, and whether regulators can prevent rapid digital transfers from becoming an easier vehicle for illicit finance.
Liang’s central proposition is therefore not simply that stablecoins are a better payment technology. They are a form of private money whose benefits—faster cross-border transfers, wider access to dollar instruments, and greater Treasury demand—come with public-policy consequences. The United States may gain a new digital distribution channel for its currency and its debt, but it also has to manage the financial-integrity, credit, and debt-issuance effects of that channel.
Stablecoins are blockchain-based digital assets backed by a dedicated pool of assets and intended to maintain a dollar value, with conversion to a dollar bill available on demand. Liang describes them as “digital cash,” though they are neither physical currency nor volatile cryptoassets such as Bitcoin. Bitcoin was designed to bypass the traditional financial system, she says, but its price volatility made it unsuitable as a currency. Stablecoins were built to offer a stable-value instrument that could move on blockchain infrastructure.
Their initial use was largely in crypto-asset trading. Liang says the use cases are now broadening into cross-border payments, remittances, household transfers, and payments between small businesses. The attraction is particularly clear in cross-border transactions, where conventional payments may pass through a chain of banks and correspondent banks before reaching a recipient. Digital wallets and blockchain rails can reduce reliance on that chain.
The policy question is whether stablecoins can make that technology usable in mainstream finance without creating risks that mainstream users cannot tolerate.
Treasury demand is only genuinely new when stablecoins expand the dollar market
Nellie Liang and her co-author Brent Neiman frame the fiscal case for stablecoins around their reserves. A growing stock of dollar stablecoins could require issuers to hold more safe, short-duration dollar assets, including Treasury bills. Their paper provides a first-round calculation of potential net new demand for T-bills under different stablecoin-growth scenarios.
But the gross size of stablecoins is not the same as additional demand for government debt. The source of funds matters.
If users move money from money market funds into stablecoins, Liang says the effect on Treasury-bill demand may largely wash out: money market funds already invest in Treasury bills. If people abroad replace physical U.S. cash they already hold with dollar stablecoins, that too may be more substitution than expansion, though digital access could still produce some additional demand.
The more consequential scenario is one in which blockchain-based payment technology opens a larger market for dollar-denominated value. Liang points to countries where people hold U.S. cash as a store of value because local inflation is high or regulatory systems are weak. Stablecoins could make access to dollar value easier in those settings. If the technology expands rather than merely digitizes that demand, Treasury-bill demand could rise more substantially.
A shift from bank deposits could also be more additive than a shift from money market funds. Liang says banks do not hold as much in Treasury securities as a stablecoin issuer would be expected to hold in its reserves. That means deposits moving from banks to stablecoins could increase demand for Treasury assets, even as it creates a separate concern about credit provision.
In Liang’s framing, more demand for Treasuries could be beneficial for the U.S. government and taxpayers. But that potential benefit is conditional on the composition of stablecoin growth; it cannot be inferred simply from the amount of stablecoins outstanding.
The broader benefit is competitive pressure. Even if the current form of stablecoins does not survive as a dominant payment system a decade from now, Liang argues that the technology has already pushed innovation in the quality and cost of financial services. The question for policy is how to retain those gains while accounting for the balance-sheet shifts that may accompany them.
Mainstream use requires credible illicit-finance controls and attention to bank credit
Nellie Liang says the features that make stablecoins attractive for payments also complicate enforcement. Near-instant, low-cost, 24/7 transfers can be useful for legitimate commerce, especially across borders. They can also enable funds to move faster and in larger quantities for illicit purposes.
Liang compares the problem to cash. Once physical currency is issued and passes from hand to hand, the issuer cannot observe each transaction. Stablecoins have a related feature: once issued, they can circulate between holders in a way that does not resemble a bank’s continuous view of activity in deposit accounts.
Whatever all the features that make it really attractive for payments, sort of very quick, instant, you know, round-the-clock, all that, also make it very attractive for conducting illicit finance activities.
Liang says the GENIUS Act applies the same illicit-finance standards to stablecoin issuers as to banks. But she treats that baseline as incomplete. Making stablecoins fit for mainstream payments will require further technological, financial, and regulatory work, including stronger transaction monitoring and the ability to block or freeze accounts where activity is suspicious.
The other domestic constraint is bank credit. If stablecoins compete with banks for funds, banks may have less flexibility to extend credit. The concern is not equally distributed across borrowers: it matters most for businesses and households that have more difficulty obtaining finance from other sources.
Liang does not describe reduced credit as an inevitable permanent outcome. She characterizes it as a possible transition cost. Still, it makes the payment innovation more than a payments issue. A shift into stablecoins could improve settlement and increase demand for Treasury bills while reducing the deposit base through which banks serve borrowers who lack easy alternatives.
Bill-heavy reserve demand would change Treasury’s debt-management problem
Nellie Liang says global demand is concentrated in stablecoins backed by U.S. dollars, even though other countries have encouraged stablecoins tied to their own currencies. In the absence of a digital payment mechanism backed by U.S. dollars, she says, other currencies could have a greater opportunity to fill that role.
Foreign governments may see the same development differently. Wider use of a digital instrument backed by another country’s currency raises concerns about monetary sovereignty, according to Liang. It may also reduce seigniorage: the earnings governments receive from the use of their own currency.
Countries may further worry about financial stress when stablecoin regulation differs across jurisdictions. If dollar stablecoins become widely used but the rules governing them are uneven, authorities will ask where risks emerge in a period of stress and how they transmit through domestic financial systems. Liang’s point is not that those concerns negate the potential U.S. benefit, but that U.S. policymakers need to account for them while pursuing greater stablecoin use.
For Treasury, the more specific consequence is the maturity composition of reserve demand. Stablecoin issuers are required to hold short Treasuries, so reserve growth would concentrate demand at the bill end rather than distribute it across the maturity spectrum.
That matters because Treasury is already managing a large debt stock, rollover risk, and variability in debt-service costs while seeking to finance the government at the lowest cost over time. A stronger and more stable market for bills would not eliminate those trade-offs. It would require Treasury to review how it can continue to finance the government with an appropriate issuance structure when a new source of demand is concentrated in short maturities.
The rules now being written have to make stablecoins fit for mainstream finance
Luke Pardue asks what regulators should prioritize as they complete the GENIUS framework. Liang says GENIUS was implemented a year earlier and requires rules to be put in place within 18 months.
Liang identifies two priorities. First, the rules need to make stablecoins fit for mainstream finance rather than only for the crypto trading activity from which they emerged. That begins with reserves. If issuers hold uninsured deposits rather than only cash and Treasury bills, she says, they should face higher capital requirements for those deposits.
The framework also needs to put workable illicit-finance safeguards into the operating model. Liang points to better transaction-monitoring technology and mechanisms to block or freeze suspicious accounts. Private firms are developing such tools, she says, and regulators need to ensure the capabilities are in place.
Those safeguards matter for companies, Treasury departments, and corporate cash managers considering stablecoins for settlement. In Liang’s account, they cannot take the risk that a stablecoin will fail to convert at par or become widely used for illicit finance.
They can't risk not being able to convert at par, or that the stablecoin might be used widely for illicit finance.
The second priority is for Treasury to assess whether stablecoins represent a durable enough source of bill demand to change its issuance calculus. The task, in Liang’s view, is to incorporate that possibility into the government’s debt-management framework—not to assume that stablecoin growth by itself resolves the trade-offs around maturity structure and debt-service variability.