A new concern has emerged inside the Federal Reserve: digital dollars may be quietly rewriting the rules of interest rate equilibrium.
Key Takeaways
- Fed Governor Stephen Miran warns stablecoin adoption could lower the economy’s equilibrium interest rate.
- He advocates quicker rate cuts, arguing current policy is overly restrictive.
- Stablecoin reserves tied to Treasuries may reshape long-term monetary conditions.
Federal Reserve Governor Stephen Miran believes the growing use of stablecoins — digital tokens backed one-to-one by traditional reserves — could gradually drag down the economy’s neutral interest rate, or “R-star.” That’s the theoretical rate where monetary policy neither speeds up nor slows down growth.
Liquidity Surge From Digital Money
Speaking in New York on Friday, Miran described a scenario where expanding stablecoin circulation adds fresh liquidity to the financial system. Each token issued is backed by a pool of safe assets such as cash and Treasury bills, effectively increasing the amount of loanable funds in the economy.
“When you inject that kind of capital supply into markets, the long-run balance between savings and investment starts to shift,” he noted. “That equilibrium change naturally pulls R-star lower.”
In simpler terms, the Fed governor argues that the more stablecoins there are, the more downward pressure builds on interest rates — a structural shift that could require the central bank to operate with a permanently lower policy rate to avoid economic strain.
A Call for Aggressive Rate Cuts
Miran, appointed by President Donald Trump, has repeatedly pushed for faster rate reductions. He insists that the Fed’s current policy stance is too tight for an economy operating below its neutral threshold. His argument ties recent changes in trade, tariffs, and immigration policy to a fall in the underlying rate of equilibrium.
“If the central bank doesn’t adjust,” he has warned, “it risks unintentionally tightening into weakness.” Miran has proposed a sequence of half-point cuts to realign borrowing costs with the lower R-star he envisions.
Stablecoins’ Expanding Role in U.S. Finance
Under recent U.S. legislation, stablecoin issuers must back tokens entirely with cash and Treasury securities. That link, Miran explained, amplifies Treasury demand as digital assets proliferate. While the sector remains small relative to the broader bond market, its expansion could subtly influence both liquidity conditions and the Fed’s long-term rate-setting process.
For now, stablecoins remain a fraction of the overall money supply — but in Miran’s view, they represent a structural change that the Federal Reserve can no longer afford to overlook.
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Source: https://coindoo.com/stablecoins-emerge-as-a-new-force-in-monetary-policy-fed-official-says/