A notable increase in the demand for crypto stablecoins connected to the US dollar could potentially lower interest rates, as suggested by US Federal Reserve Governor Stephen Miran.
Miran, appointed by Donald Trump, expressed his views during the BCVC summit held in New York this past Friday. He indicated that these dollar-pegged cryptocurrencies might exert “downward pressure” on the neutral interest rate—often referred to as r-star—which neither invigorates nor restrains economic activity.
If the neutral rate decreases, the central bank would likely respond by lowering interest rates, Miran noted.
Currently, the combined market capitalization of all stablecoins is around $310.7 million, as reported by CoinGecko. Miran hinted at research from the Federal Reserve that anticipates the market could expand to approximately $3 trillion in the following five years.
Stephen Miran speaking at a conference in New York on Friday. Source: BCVC
Miran implied, “My thesis is that stablecoins are already increasing demand for US Treasury bills and other dollar-denominated liquid assets by purchasers outside the United States and that this demand will continue growing.”
He warned that stablecoins might evolve into a multi-trillion-dollar concern for central bankers.
Institutions like the International Monetary Fund have raised alarms that stablecoins could undermine traditional financial assets and services, as they might directly compete for customers. Additionally, US banking associations have urged Congress to impose stricter regulations on stablecoins that offer yield, positing that these could draw customers away from banks.
Regulation to Facilitate Growth
In his address, Miran acknowledged the GENIUS Act for its role in providing clear regulations and consumer protections. He emphasized that a solid regulatory framework will be crucial in promoting the wider adoption of stablecoins.
“While I tend to view new regulations skeptically, I’m greatly encouraged by the GENIUS Act. This regulatory apparatus for stablecoins establishes a level of legitimacy and accountability congruent with holding traditional dollar assets,” he stated.
Miran added the following quote regarding monetary policy:
“For the purposes of monetary policy, the most important aspect of the GENIUS Act is that it requires U.S.-domiciled issuers to maintain reserves backed on at least a one-to-one basis in safe and liquid US dollar–denominated assets.”
For more updates, check out the related article on how TradFi banks are advancing new stablecoin models.
