Fed Governor Stephen Miran on Friday suggested that surging demand for dollar-denominated stablecoins could help push U.S. interest rates lower.
In a speech delivered for an audience of economists in New York, the central bank official and appointee of President Donald Trump said the flood of crypto tokens pegged to the dollar could tamp down what economists refer to as “r-star,” or the “neutral” rate of interest that neither pushes nor impedes growth.
If that happens, he said, the Fed might need to lower its own policy rate to avoid unintentionally slowing the economy.
“Stablecoins may become a multitrillion-dollar elephant in the room for central bankers,” Miran said. “Stablecoins are already increasing demand for U.S. Treasury bills and other dollar-denominated liquid assets by purchasers outside the United States, and this demand will continue growing.”
Citing prior research, Miran said stablecoin growth could push the Fed’s benchmark rate down by 0.4 percentage point.
During his short time on the Fed board, Miran has advocated aggressive rate cuts, in part because he thinks the neutral rate is considerably lower than most of his colleagues assume. His latest remarks extend that argument into the world of digital finance, suggesting that the rise of stablecoins could structurally lower borrowing costs for years to come.
Previously, his arguments have been focused largely on moderating inflation and the importance of the Fed not impeding economic growth with higher rates. The stablecoin dissertation adds another wrinkle to the case for easier 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, he said. If neutral is lower, he added, “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 expected to leave the Fed in January, when the unexpired term he is filling runs out.