Why stablecoins are poised to be Trump's new best friend!

The US’s national debt has reached historic highs (surpassing $36 trillion in 2025) and this trajectory is increasingly a source of concern for economists, policymakers and investors alike. The nation currently holds the highest national debt in the world, and the federal debt-to-GDP ratio exceeded 120% in 2024 (its highest since World War II) with a potential to climb toward 166% in the next 30 years if current trends persist. Wells Fargo estimates more than $14 trillion of this debt will mature within the next three years, requiring refinancing at higher interest rates, which will further increase the cost of servicing the debt - that is unless Trump can find buyers of US debt and so put pressure on US interest rates to fall. The average rate the US government pays to finance its debt is now 3.27% but, with much of the debt maturing soon, refinancing at today’s rates (3.75%-5.25%) could add $300 billion in annual interest costs! Over the next three years, annual deficits are projected to run between $1.7-$1.9 trillion, meaning even more debt will be issued and, hence, compounding the problem. Furthermore, since interest payments consume a larger share of the federal budget, less money is available for other priorities, with the unsurprising potential of weighing on economic growth.

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Both major US political parties have signalled intentions to increase spending but with little appetite for entitlement reform or major tax increases. Recent proposals, such as the extension of the 2017 tax cuts, could add another $3 trillion to the national debt and this political stalemate makes it unlikely that significant deficit-reducing measures will be implemented in the near term, further exacerbating fiscal pressures. Moreover, whilst the US Treasury market remains the largest and most liquid in the world, recent events show that markets are not immune to concerns. Moody’s Ratings has downgraded the US credit rating on 16th May 2025 to Aa1 (from Aaa), citing apprehensions over the escalating debt and the lack of a credible plan to address it. If investors begin to demand higher yields to compensate for increased risk, borrowing costs could rise even further therefore creating a feedback loop that intensifies fiscal challenges. Roughly a quarter of US debt is owned by foreign governments and investors, making the US reliant on continued global demand for its securities - unless the Trump administration can find a new buyer of US debt. Significantly, any sign that the US might struggle to manage its debt could undermine confidence in the dollar as the world’s reserve currency and destabilise global financial markets; there are historical precedents for successful debt management. In the 1980s and 1990s, Congress enacted laws to control budget expansion which, combined with strong economic growth, reduced the debt-to-GDP ratio by nearly 20 percentage points between 1994 and 2011. However, the political will for such reforms appears lacking today and the longer Congress waits to act, the more likely it is that markets will force austerity through higher yields.

So, the question is: where is Trump to turn to find a buyer of US debt and so keep interest rates low and maintain the US$ as the world’s reserve currency? Treasury Secretary, Scott Bessent, recently said that stablecoins could trigger $2 trillion in T-bill demand, stating: “We are going big on digital assets.” The answer could well be stablecoins - that is, if Citibank is correct, there could be $3.7trillion of money poured into stablecoins by 2023. Furthermore, assuming that the Genuis Act is passed, then, according to Senator Kirsten Gillibrand: “The bipartisan GENIUS Act will provide regulatory clarity to this important industry, keep innovation on shore, add robust consumer protection, and reaffirm the dominance of the U.S. dollar.” Indeed, Bank of America CEO, Brian Moynihan, confirmed his bank would “go into stablecoins if regulation were passed in the US.” However, Bank of America has served a note of caution - increased stablecoin adoption could potentially pose a risk to bank deposits, pushing value creation outside of the bank sector. And, despite this, Bank of America, JP Morgan and Citigroup have been reported to be looking to create a stablecoin together. Certainly, the rise in interest in stablecoins has not gone unnoticed. As CZ ,the CEO and founder of Binance, the world’s biggest digital asset platform, reminded us in the picture above: “I see more stablecoins startups than altcoins.” In addition, according to data from Artemis, there are now over 220 different stablecoins which have attracted over $4 trillion worth of transactions in the last 30 days alone (the vast majority being US$ denominated). Yet the stablecoin market is dominated by two titans, Tether’s USDT, with over $150billion, and Circle’s USDC with $61billion undermanagement.

Interestingly, Circle has recently carried out an IPO which has proved to be a huge success and, as reported by Investing.com on Circle’s first trading day: “The company’s IPO shares were priced at $31, but the trading on the NYSE opened at $69, going all the way up to $103.75, and closing at $83.23 per share.” Meanwhile, the CEO of Tether considers that $512billion as a valuation for Tether is too low but then, having made $13billion in 2024, presumably Tether’s current investors either do not need the money by selling shares or maybe they wish to share the spoils. However, if Tether were to sell shares to those global banks that potentially have strong distribution in Africa, Asia and or Latin America, then presumably Tether maybe tempted to sell some of its equity? And, If Citibank’s estimates are correct and Trump can indeed encourage $trillions to be invested in stablecoins, this could well help to reduce interest rates and enable Trump to recapitalise the $14trillion of US debt that needs to be refinanced in the next three years. Indeed, BIS estimates that inflows into stablecoins reduce short-term (three-month) US Treasury yields by approximately 2 to 2.5 basis points within 10 days; these effects are concentrated in the short-term Treasury market, with limited to no spillover into longer-term maturities.

Does this therefore mean that stablecoins may now be on the verge of becoming a central pillar in US debt management strategy, especially under a Trump-led economic agenda? If Trump’s Genius Act is passed and regulatory clarity enables further institutional adoption, the US dollar could find its strongest allies, not in central banks but in permissionless stablecoin rails run by FinTechs. This could effectively re-anchor dollar hegemony via blockchain but outsource parts of US monetary architecture to private issuers.

Here lies the paradox: stablecoins offer speed, demand and digital dollar dominance, yet they risk tethering sovereign financial health to the solvency, transparency and discipline of private issuers. The future may not be central banks versus stablecoins but may be central banks relying on stablecoins. That makes this less a question of “innovation versus regulation” and more one of who truly controls the dollar in the 21st century and whether that control is democratically accountable. So, as the world debates digital currencies, stablecoins may have already won by quietly embedding themselves at the heart of global liquidity. Stablecoins could save the US dollar or fracture it from within. Either way, they are no longer a sideshow - they are the new power players in global finance.