The U.S. Treasury Department has expressed concern over the growing stablecoin market, suggesting that privately issued stablecoins should ultimately be replaced by a central bank digital currency (CBDC). This recommendation is based on fears that the extensive purchase of U.S. Treasuries by stablecoin issuers, estimated at $120 billion, could pose systemic risks. The report cites examples of stablecoins collapsing and highlights that over 80% of crypto transactions involve stablecoins. With Tether, the largest stablecoin issuer, holding nearly $81 billion in T-bills, the Treasury warns that a major stablecoin failure could trigger a rapid sell-off of these securities, destabilizing the market. Despite stablecoin advocates arguing that these digital currencies enhance demand for U.S. dollars, the Treasury remains unconvinced, pointing to the risks associated with their integration into traditional financial systems. There is also political pushback against CBDCs, with several lawmakers and former President Trump expressing opposition. However, the Treasury’s stance indicates a need for a government-backed alternative to stabilize digital currency transactions.

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