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Circle rebalances treasury holdings amid US debt default concerns

circle-rebalances-treasury-holdings-amid-us-debt-default-concerns
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Circle rebalances treasury holdings amid US debt default concerns

Concerns about a possible U.S. government default have prompted Circle, a prominent stablecoin producer, to adjust its treasury holdings. The business has chosen to keep a reserve portfolio heavily weighted toward short-term U.S. treasuries. 

The move to short-dated debt occurs as debate rages on among financial experts over raising the U.S. debt limit, with some sounding the alarm about the growing possibility of a default.

Circle has decided to adjust its treasury assets to protect the $30 billion reserves of its USD Coin stablecoin and reduce its vulnerability to a potential U.S. default.

According to CEO Jeremy Allaire, Circle no longer invests in treasuries that will mature later than early June. All of the company’s assets have a maturity date of May 31 or earlier. 

Since the U.S. treasury market is the foundation of the global financial system, this action was taken out of worry for its potential impact in the event of a U.S. government default. A little shock to the market might result in widespread confusion and disarray.

After it was discovered that $3.3 billion of the reserves used to underpin the stablecoin were kept at the defunct Silicon Valley Bank in March, the company’s USD Coin temporarily lost its 1-for-1 peg to the dollar. While the token has recovered, this event showed how vulnerable Circle’s reserves are to market volatility.

The biggest stablecoin’s operator, Tether, has similarly reduced its reliance on U.S. treasuries. Recently, the firm said it had increased its holdings of U.S. treasury notes with a maturity of fewer than 90 days to $53 billion.

The big saga

As the argument in Washington D.C. over whether or not to raise the debt limit heats up more, experts are warning of the growing potential of a U.S. default. President Joe Biden met with congressional leaders to address the matter, but the meeting ended with little apparent progress.

Recent legislation by house speaker Kevin McCarthy would increase the borrowing ceiling by $1.5 trillion while slashing expenditure by $4.5 trillion. This idea has been met with criticism from democrats.

The Federal Reserve chair Yellen has frequently expressed to legislators the dire consequences of failing to lift the debt limit. She has even said that June 1 might mark the beginning of the U.S. default on its obligations.

The IT industry’s own Elon Musk has shared his thoughts. Musk’s two-word reaction to a Twitter user who said, “defaulting on the national debt is a bad idea,” was “increasingly possible.”

Meanwhile, Berkshire Hathaway CEO Warren Buffett believes that the United States would not let U.S. depositors lose money or block more government borrowing.

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