Stablecoins Won’t Save Us From Fiscal Folly

A stablecoin rulemaking sprint is underway across five federal agencies. They are translating the GENIUS Act, which created a comprehensive regulatory framework for stablecoins—a type of cryptocurrency tied to a stable asset—into operational rules that will shape American payment systems for a generation. The Office of the Comptroller of the Currency’s comment period closed May 1; others are not far behind.

The political coalition behind stablecoin rules is striking. The Trump Administration views it as a tool for entrenching dollar dominance. Cryptocurrency advocates see it as long-overdue regulatory clarity. Free-market types are optimistic about unleashing chained-up capital and speeding up the payments process.

Whatever their differences, they seem to share the same plan in theory. GENIUS requires stablecoin issuers to back their cryptocurrency tokens with cash, short-term Treasuries, and similar safe assets. As the stablecoin market grows, it will generate new demand for the very instruments the Treasury must roll over most frequently. Researchers at the Bank for International Settlements have already documented that stablecoin inflows reduce three-month Treasury bill yields. Scale this up, and you create a steady base of buyers for short-term federal debt. Fintech, or any app or other tech that allows users to view their finances or make financial transactions, feeds the government’s fiscal appetites.

This arrangement solves a political problem. The Congressional Budget Office (CBO) now projects that federal debt held by the public will reach 120% of GDP by 2036. Net interest costs will more than double, from $1 trillion this year to $2.1 trillion. The Committee for a Responsible Federal Budget warns that the average interest rate on the debt could exceed economic growth as soon as 2031—the textbook condition for a debt spiral.

To stave off a potential crisis, the Treasury needs someone to absorb rising short-term debt issuance at acceptable yields. The Fed is the obvious candidate, but that route is constrained by political optics, including fears of future inflation. Stablecoins offer a novel and elegant alternative: private intermediaries soaking up Treasury debt under the guise of financial innovation.

However, using crypto cleverness to avoid meaningful fiscal reform has real costs. Bond markets are supposed to discipline governments by raising the cost of borrowing when spending becomes unsustainable. That signal forces legislatures to confront fiscal realities they would otherwise ignore. Stablecoin demand mutes the signal. Yields stay lower than they otherwise would, especially during the crises that are supposed to prompt reform.

Getting Congress to act was already difficult. Now it might become impossible.

It gets worse. GENIUS makes government borrowing and spending easier. That means they will grow even larger as a share of the economy. But unlike private spending, the incentives for public spending to create wealth are weak. With the exceptions of national defense and critical infrastructure, every dollar Uncle Sam spends redirects capital from creating value to transferring value. And since resources are used up in the process, society becomes poorer. This won’t show up in the national income statistics. Instead, it will manifest as the grasping hand of government crowding out the invisible hand of markets. We’ll all be poorer.

Even more worrying, we risk fooling ourselves into thinking we’ve avoided a fiscal reckoning when in fact we’ve merely postponed it. Stablecoin demand for T-bills is not unlimited, and the fiscal trajectory the CBO projects can’t be fully righted by fintech-sector growth. Stablecoins will buy us time, but in the meantime, deficits will compound, debt will rise, and the eventual adjustment will become larger and more disruptive. In the end, we still have to answer to the bond market. When that market finally enforces discipline, it will do so against a worse starting position than otherwise.

None of this is an argument against stablecoins in principle. Faster payments, lower transaction costs, and broader dollar access are real benefits. Instead, it’s a warning to be on guard against fiscal illusion. Financial innovation can never substitute for fiscal responsibility. Congress must address the underlying trajectory through actual reform. We still need spending restraint—especially for entitlements—and a credible commitment to sustainable budgets. Anchoring Treasuries demand with stablecoins is a flashy stopgap for an enduring structural problem.