Stablecoin Impact on Neutral Interest Rates
Federal Reserve Governor Stephen Miran highlighted the potential impact of stablecoins on interest rates during a November 8th event, urging policy rate cuts to avoid economic contraction.
Miran's comments indicate stablecoin growth could depress neutral rates, necessitating policy adjustments to maintain economic stability.
Federal Reserve Board Governor Stephen Miran discussed how stablecoin issuance could significantly affect the economy's neutral interest rate at the recent Summit. This would necessitate aligning the policy rate with the lower neutral rate to prevent contraction.
Miran highlighted that stablecoin growth leads to an increased supply of lendable funds, lowering borrowing costs for the government. Failure to adjust interest rates could cause economic tightening pressures.
"Even relatively conservative estimates of stablecoin growth imply an increase in the net supply of loanable funds in the economy that pushes down the economy’s neutral rate... If R-star is lower, 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... is contractionary." — Stephen Miran, Federal Reserve Board Governor
Few notable responses emerged, with no direct reactions from major crypto leaders. However, the statement stirred interest in how stablecoins can integrate into existing financial systems, potentially reshaping monetary policy decisions globally.
Stablecoins and Increased Demand for U.S. Treasuries
Even conservative growth estimates of stablecoins could draw parallels to the "global savings glut" period, which significantly lowered U.S. long-term interest rates before the financial crisis.
Tether USDt currently holds a price of $1.00. With a market cap of $183.40 billion, Tether's daily trading volume soared to $169.86 billion. The price has been stable, with minimal fluctuations over the past 90 days, demonstrating its steady market presence.
Research indicates that stablecoin growth could reshape traditional finance, particularly boosting U.S. Treasury demand. As regulatory frameworks evolve, stablecoin liquidity might integrate more deeply within traditional networks, enhancing economic resilience.