Dollar-backed stablecoins could reinforce the US currency’s global position and increase demand for US government debt, but large-scale redemptions could also create new sources of stress in the Treasury market, according to Carolyn Wilkins of the Bank of England’s Financial Policy Committee.
Speaking Tuesday at Queen’s University Belfast, Wilkins said stablecoins denominated in US dollars could make cross-border settlement easier and broaden access to dollar-linked assets outside the United States. Because issuers generally hold reserves in highly liquid assets, wider adoption could also increase demand for US Treasury bills.
Stablecoin issuers are major Treasury buyers
Tether’s USDt (USDT) and Circle’s USDC held nearly $150 billion in Treasury bills at the end of 2025, based on figures cited by Wilkins. The two issuers purchased approximately $33 billion of Treasury bills during that year.
Stablecoins now have more than $300 billion in circulation, and dollar-denominated tokens account for 98% of the market by value. Wilkins described the dollar’s dominance in the sector as giving the currency a “very large first-mover advantage.”
However, she also warned that the relationship could work in reverse during a period of market stress. If holders sought to redeem stablecoins at scale, issuers might need to sell Treasury bills to raise cash. Such forced sales could amplify volatility in an already pressured government bond market.
UK advances its stablecoin framework
Pound-denominated stablecoins have gained far less traction than their dollar-based counterparts, although UK authorities have continued work on a domestic framework for the sector.
The Financial Conduct Authority has begun testing potential stablecoin issuers through a dedicated regulatory sandbox and finalized rules for UK stablecoin issuance in June. The Bank of England has also been examining how stablecoins could interact with a simulated digital pound in cross-border payments.
The central bank’s work follows criticism from parts of the industry that earlier proposals could restrict innovation. Its recent experiments indicate a more accommodating approach as regulators assess both the potential benefits and financial-stability risks of wider stablecoin use.
