Federal Reserve Governor Stephen Miran has predicted that the explosive growth of stablecoins could reshape global capital flows and force U.S. interest rates lower.
Speaking in New York on Nov. 7, Miran explained that the rise of stablecoins, boosted by the recently enacted Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, represents a structural shift in global finance.
Lower neutral interest rate
Miran said demand for dollar-backed tokens can trigger “a substantial and long-term force putting downward pressure” on the neutral interest rate, or
r*.
As more people and companies buy dollar-backed stablecoins backed by U.S. Treasurys, it increases the flow of money into the financial system, pushing down yields and interest rates.
This can be good in the short term because it makes loans cheaper, encourages spending, and supports investment and innovation. But over time, it can also be risky as the Fed would have less room to cut rates in future recessions, savers would earn less on deposits, and markets could see more bubbles as investors chase higher returns.
Miran warned that if the Federal Reserve doesn’t cut rates as the neutral interest rate falls, it could be “contractionary.”
Keeping rates too high when the neutral rate is low makes borrowing more expensive, curbs spending and investment, and risks an economic slowdown even if inflation remains stable.
“In short, stablecoins may become a multitrillion-dollar elephant in the room for central bankers,” Miran said.
‘Global saving glut’
Federal Reserve estimates suggest that stablecoin adoption could reach between $1 trillion and $3 trillion by the end of the decade, a massive expansion comparable to the Fed’s own $3 trillion bond-buying program during the pandemic.
Miran said that such demand would represent a significant new force in the market. If these projections hold, the surge in stablecoin-related purchases of Treasurys would be too large for policymakers and investors to overlook.
Economists have compared the potential effects of high stablecoin adoption to the early 2000s “global saving glut” identified by former Fed Chair Ben Bernanke, when foreign capital inflows helped suppress yields.
Miran estimated that stablecoin-driven demand could mirror up to 60% of that impact if adoption exceeds $4 trillion.
Stablecoins can drive demand for U.S. assets
Stablecoins, digital assets pegged to fiat currencies such as the U.S. dollar, are increasingly used worldwide as a means of payment and store of value. Miran noted that their success reflects growing global demand for dollar assets and efficient payment rails beyond traditional banking.
The GENIUS Act requires U.S. stablecoin issuers to hold reserves in safe, dollar-denominated assets like Treasury bills and money market funds. According to Miran, this could boost foreign demand for Treasurys, lowering U.S. borrowing costs and pushing down equilibrium interest rates.
Miran added that widespread stablecoin adoption abroad could amplify dollarization, synchronize global business cycles, and blunt the impact of floating exchange rates.
“Stablecoins will not instantly obliterate barriers to dollar use, but they will perforate those barriers,” he said, adding that this could redefine how global liquidity interacts with U.S. monetary policy.
