Bank of England Warns Stablecoins Now Move Treasury Markets

A Bank of England policymaker has put a number on something crypto watchers have long suspected: stablecoins are no longer a sideshow to sovereign debt markets, they are a participant in them. Speaking Tuesday at Queen’s University Belfast, Financial Policy Committee member Carolyn Wilkins said the growth of dollar-pegged stablecoins is reinforcing US dollar dominance and feeding real demand for Treasury bills, even as it introduces a new channel through which stress in crypto markets could spill into government debt.

The figures behind that warning are striking. Tether’s USDT and Circle’s USDC together held nearly $150 billion in Treasury bills at the end of 2025, according to the data Wilkins referenced. Over the course of the year, the two issuers bought roughly $33 billion in T-bills, making them a meaningful marginal buyer in a market that governments rely on to fund themselves cheaply. The broader stablecoin market now circulates more than $300 billion, and the dollar accounts for 98% of that value, cementing the currency’s grip on the sector even as central banks elsewhere try to carve out space for their own money.

Why a UK regulator is talking about US debt

It might seem odd that a Bank of England official is the one flagging dollar-Treasury dynamics, but that is precisely the point Wilkins was making. Stablecoins are issued and used globally, yet almost all of them are backed by dollar assets, which means their growth automatically strengthens the dollar’s international position and expands demand for US government paper, regardless of where the coins are actually used. The UK has been building its own regulatory scaffolding for stablecoins, including work by the Financial Conduct Authority, which finalized issuance rules in June 2026, and a sandbox environment where the Bank of England has tested stablecoins alongside a simulated digital pound for cross-border payments. Yet pound-denominated stablecoins remain far behind their dollar counterparts in both scale and adoption, a gap that mirrors the broader story: even the world’s most established financial centers are struggling to compete with dollar-based stablecoin infrastructure that has already built deep ties to the US Treasury market.

That imbalance is not just a UK problem. It is the reason global regulators, from the FCA to the World Trade Organization, keep circling back to the same question about fragmented national rulebooks slowing stablecoin development everywhere except in the dollar’s home market, a concern a WTO official raised recently when pointing to regulatory patchwork rather than technology as the real bottleneck.

The other side of the ledger: redemption risk

Wilkins’ speech was not simply an endorsement of stablecoins as a quiet source of Treasury demand. She also warned that the same mechanism that makes stablecoins useful buyers of government debt in calm markets could make them a source of instability in stressed ones. If holders rush to redeem large volumes of stablecoins at once, issuers would need to sell Treasury bills quickly to meet those redemptions. Because Tether and Circle now hold close to $150 billion in T-bills between them, a redemption wave of sufficient size could force selling large enough to add volatility to a market that governments and investors count on for stability and liquidity.

This is the structural tension regulators are grappling with: stablecoins are attractive precisely because they are liquid and redeemable on demand, but that same feature ties their fate, and by extension a slice of the Treasury market, to the confidence of crypto users. It is a dynamic quite different from a bank run, since stablecoin issuers hold short-term government securities rather than long-duration loans, but the transmission mechanism, a rush for the exits triggering forced asset sales, is conceptually similar.

What it means for markets and policy

For now, the numbers suggest stablecoins remain a net positive for Treasury demand rather than a destabilizing force, and the growing interest from traditional finance, including banks reportedly exploring their own stablecoin launches, points to further integration rather than retreat. Traditional finance is also embracing tokenization more broadly, as seen in moves like arrangements letting community banks offer stablecoins without building the infrastructure themselves, or India’s pilot to tokenize its corporate bond market, both signs that stablecoin-adjacent infrastructure is spreading well beyond crypto trading.

Still, the warning from a Financial Policy Committee member carries weight because it comes from an institution tasked with spotting systemic risk before it materializes, not after. Watch for how UK and US regulators calibrate reserve requirements and redemption safeguards for large issuers, whether the FCA’s June 2026 rules get tested by real-world stress, and how quickly pound-denominated stablecoins can close the gap with dollar-based competitors. Deals expanding stablecoin distribution, such as Circle’s push into new payment corridors, will also shape how concentrated or diversified this Treasury-linked exposure becomes over time.

Source: Cointelegraph

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