Bank of England warns of stablecoin risks to US Treasury markets

Carolyn Wilkins, an external member of the Bank of England’s Financial Policy Committee, noted that dollar-pegged tokens currently command a significant first-mover advantage, accounting for 98% of the global market. As these assets move beyond crypto trading into international payments and remittances, they effectively extend the reach of the US dollar. By bypassing traditional banking networks, stablecoins provide a digital dollar alternative for users in regions with unstable local currencies or expensive banking corridors.

This growth creates a structural dependency on US government debt. Issuers like Tether and Circle invest the bulk of their reserves in short-term Treasury bills and repurchase agreements to maintain their pegs. In 2025 alone, these firms added roughly $33 billion in Treasury bills to their holdings, bringing their total investment to nearly $150 billion. While this influx helps absorb government issuance, Wilkins cautioned that the feedback loop is fragile. If market volatility triggers a mass redemption event, issuers might be forced to liquidate these holdings rapidly, potentially exacerbating downward pressure on Treasury prices during already strained conditions.

Regulatory frameworks are attempting to mitigate these liquidity risks. The US GENIUS Act mandates that issuers maintain high-quality, liquid reserves, but Wilkins argues that reserve requirements alone do not guarantee the speed of conversion during a market run. Unlike traditional banks, stablecoin issuers lack prearranged emergency liquidity from the Federal Reserve. Consequently, the Bank of England is prioritizing stricter liquidity contingency plans for its own systemic sterling stablecoins, ensuring that issuers have defined procedures for failure and, in specific cases, conditional access to central bank liquidity facilities.