In an interview with Politico, CEO Jeremy Allaire said that Circle has adjusted the distribution of reserves backing USD Coin to favor short-term U.S. Treasury bonds so it can avoid being affected in the event of a potential U.S. debt default.
Circle Shortens the Term of Treasury Bonds to Avoid Impact in the Case of US Bankruptcy
In the interview, Allaire said the company, which is the issuer of the second-largest stablecoin in circulation, no longer holds Treasury bonds due after early June because it doesn't want to risk "a possible crisis in the US government's ability to pay its debts."
Statements by the Circle Reserve Fund, managed by BlackRock, show that the current assets are due by May 31 at the latest.
The US debt crisis is a situation where the US government is at risk of failing to meet its obligations as it reaches its statutory borrowing limit, also known as the debt limit.
The debt limit is currently set at $31.4 trillion and was exceeded on January 19, 2023. Since then, Treasury Secretary Janet Yellen has been taking extraordinary measures to generate cash and pay the government's bills, but these measures are expected to expire in early June.
If the debt limit is not increased by Congress before the emergency measures are exhausted, the US government will be unable to borrow any more or issue new bonds and will have to rely on its cash balance and incoming revenues to meet its obligations.
This could lead to a partial shutdown of the US government, delayed payments to federal employees, contract personnel, Social Security beneficiaries, and others, and diminished US credibility and reliance on the dollar.
Tether, the operator of the largest stablecoin, reported Wednesday that it had increased its US Treasury bond holdings to $53 billion. The average remaining maturity of the Treasury bills held by the company is less than 90 days.
*Not investment advice.