Adoption of stablecoins could push interest rates to lower levels

Federal Reserve governor Stephen Miran said Friday that stablecoin issuance could lead to lower interest rates.

Miran believes that adoption of stablecoins will lead to a “substantial and long-term force” that pushes down the neutral rate, a level on the Fed’s benchmark policy rate designed to neither stimulate nor slow economic growth. That would translate, he contends, to lower interest rates.

“Even relatively conservative estimates of stablecoin growth imply an increase in the net supply of loanable funds in the economy that pushes down [neutral],” Miran said in a speech at the Harvard Club of New York City. “If [neutral] 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 to a reduction in [neutral] is contractionary.”

Miran said that stablecoins are increasing demand for US Treasury bills because of new congressionally mandated requirements that stablecoins be backed by liquid assets. He expects demand for Treasurys to back stablecoins will push down yields — which move in the opposite direction of bond prices — leading to lower interest rates and, thus, lower borrowing costs in the economy.

Read more: How stablecoins work

Bottom line: It could mean that the neutral rate is lower.

Many members of the Fed estimate that the neutral rate is currently around 3%. Miran sees the neutral rate at around 2.5%. The Fed’s interest rate is now in a range between 3.75% and 4%, still above neutral.

Miran cited projections indicating between $1 trillion and $3 trillion of growth in stablecoins over the next several years. He also cited work by two economists last year that estimated that if stablecoins are in widespread use and fully backed by US securities, it could push down interest rates by as much as 40 basis points.

Miran also said that pressure pushing down interest rates means that in times of recession or crisis, rates could get pushed to zero and remain there for longer.

Miran’s argument comes after Treasury Secretary Scott Bessent said that he believes capital requirements of the recently passed stablecoin bill, known as the GENIUS Act, could increase demand for Treasurys by as much as $2 trillion, pushing down bond yields and translating to lower borrowing costs.

Jennifer Schonberger covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

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