Can stablecoins lower interest rates?

Statements by Fed Member Stephen Miran

Stephen Miran, who has been appointed as a member of the Federal Reserve (Fed) in the U.S., made significant remarks regarding the growth of stablecoins at a conference held in New York. Miran discussed the impact of dollar-indexed crypto assets (stablecoins) on economic dynamics, stating that these digital assets could have profound effects on interest rates.

The Impact of Stablecoins on the Economy

Miran commented on the effects of stablecoin flows on the economy, expressing that the "neutral" interest rate could decrease. If this happens, he emphasized that there might be a necessity for the Fed to lower the policy interest rate in order not to inadvertently slow down the economy. Furthermore, he referred to the growth of stablecoins as a trillion-dollar 'elephant' for central banks.

Demand for Currency and Treasury Securities

Miran stated that stablecoins have increased the demand for Treasury securities and other dollar-denominated liquid assets among investors outside the U.S., predicting that this demand will continue to rise.

Policy Interest Rates and Neutral Interest Rate

Referring to his preliminary research, Miran pointed out that the growth of stablecoins has the potential to lower the Fed’s benchmark interest rate by approximately 0.4 points. He has recently drawn attention for supporting aggressive interest rate cuts during his tenure on the Fed board. He continues to argue that the neutral interest rate is lower than current estimates.

Long-Term Effects

Miran indicated that the rise of stablecoins has the potential to structurally keep borrowing costs low. He continued his statements: "Even conservative estimates regarding the growth of stablecoins are increasing the supply of lendable funds in the economy, which leads to a decrease in the neutral interest rate. To support a healthy economy, policy interest rates must also be lower in parallel with this decline."