What is a stablecoin? Explained (3:33)
The Donald Trump administration is considering a radical plan involving stablecoins to boost the U.S. dollar, Bloomberg reported on Sep. 24.
The administration’s goal is to cement the dollar’s dominance as the world’s reserve asset.
Related: Explained: What is a stablecoin?
Why Trump administration is betting on stablecoins
A stablecoin, as the name suggests, is a type of cryptocurrency that attempts to keep its value stable. Unlike popular cryptocurrencies like Bitcoin (BTC), which are very volatile, a stablecoin keeps its value stable by being pegged to a relatively stable asset like a national fiat currency.
For instance, Tether’s USDT and Circle Internet Group‘s (NYSE: CRCL) USDC stablecoins are pegged 1:1 to the U.S. dollar. So, the value of one USDT or USDC is the same as that of one dollar bill. Stablecoin issuers hold reserves in U.S. Treasuries to back their tokens.
This is why the dollar-pegged stablecoins are also called “digital dollars.”
Related: Trump makes bold claim on U.S. dollar
The U.S. dollar is the most commonly used currency to settle international transactions. These digital dollars come to the rescue of merchants when traditional rails go to sleep over the weekends or long holidays.
U.S. dollar-pegged stablecoins, thanks to their round-the-clock nature, can help settle transactions quickly, safely, and economically.
The Trump administration was quick to realize the potential of these stablecoins to cement the U.S. dollar’s world reserve asset. It signed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act into law in July last year. The law requires stablecoin issuers to hold reserves, including dollars and short-term Treasuries.
In February this year, Treasury Secretary Scott Bessent indicated that stablecoins could be “an important feature of financing the U.S. government.”
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U.S. government weighs public-private partnerships to promote stablecoin usage
The U.S. government is weighing joint ventures with private companies to promote the use of stablecoins overseas according to people familiar with the plans, the Bloomberg report said.
The initiative could involve multiple agencies, including the Treasury Department and the State Department, and the U.S. International Development Finance Corp. (DFC). The DFC is a federal agency that partners with private sector entities to advance U.S. foreign policy objectives.
TheStreet Roundtable reached out to all three agencies for comments and didn’t receive any by the time of publishing this report. We will update it as soon as we have any response(s).
The Trump administration’s goal is to reinforce the U.S. dollar as the world’s reserve asset and boost demand for U.S. Treasuries.
Here is how it works.
A growth in stablecoin adoption directly translates into more buying of government debt instruments like U.S. Treasuries by stablecoin issuers.
The U.S. dollar-pegged stablecoins not only make the greenback more popular globally but also lead to higher demand for U.S. Treasuries, and the Trump administration is eyeing a radical plan for the same purpose.
Related: Treasury Secretary Bessent reveals new plan to finance U.S. government