Federal Reserve Governor Stephen Miran suggested on Friday that the growing demand for dollar-denominated stablecoins could contribute to a decrease in U.S. interest rates. Addressing an audience of economists in New York, Miranâa central bank official appointed by President Donald Trumpâexplained that the surge in crypto tokens pegged to the dollar might suppress what economists term as "r-star," the neutral interest rate that balances economic growth.
Should this scenario occur, Miran noted that the Federal Reserve may need to lower its policy rates to prevent an unintended economic slowdown. "Stablecoins may become a multitrillion-dollar elephant in the room for central bankers," said Miran. He highlighted that stablecoins are boosting demand for U.S. Treasury bills and other liquid, dollar-denominated assets outside the United States, with this demand expected to continue rising.
Miran cited previous studies suggesting that the growth of stablecoins could reduce the Fed's benchmark rate by 0.4 percentage point. Throughout his brief tenure on the Fed board, Miran has advocated for significant rate cuts, partially based on his belief that the neutral rate is significantly lower than assumed by many of his colleagues. His latest comments extend this perspective into the realm of digital finance, proposing that the expansion of stablecoins might structurally lower borrowing costs over the long term.
Earlier, Miran's arguments focused primarily on controlling inflation and emphasizing the necessity for the Fed to support economic growth by avoiding high rates. The addition of stablecoins to this discourse introduces a new dimension advocating for a relaxed monetary policy.
"Even relatively conservative estimates of stablecoin growth imply an increase in the net supply of loanable funds in the economy that pushes down the neutral rate," Miran remarked. If the neutral rate falls, he further explained, "policy rates should also be lower than they would otherwise be to support a healthy economy. A failure of the central bank to cut rates in response to a reduction in [r-star] is contractionary."
Miran is anticipated to depart from the Federal Reserve in January, when the unexpired term he is fulfilling concludes.