Fed’s Miran says stablecoin surge could help push interest rates lower

Fed Governor Stephen Miran suggested on Friday that increased demand for dollar-denominated stablecoins could help lower US interest rates.

The influx of cryptocurrencies pegged to the dollar could suppress what economists call the “r-star,” or “neutral” interest rate that neither forces nor inhibits growth, the central bank official and President Donald Trump appointee told an audience of economists in New York.

In such a situation, he said, the Fed may need to lower its own policy rate to prevent it from inadvertently slowing the economy.

“Stablecoins could become a multitrillion-dollar elephant in the eyes of central bankers,” Miran said. “Stablecoins are already driving demand for U.S. Treasury bills and other dollar-denominated liquid assets from non-U.S. buyers, and that demand will continue to grow.”

Citing previous research, Miran said stablecoin growth could push the Fed’s benchmark interest rate down by 0.4 percentage points.

Miran has advocated for aggressive rate cuts during his short time on the Fed board because he thinks the neutral interest rate is much lower than most of his colleagues assume. His final remarks extend this argument to the world of digital finance, suggesting that the rise of stablecoins could structurally lower borrowing costs in the coming years.

Previously, his arguments had largely focused on moderating inflation and the importance of the Fed not stifling economic growth with higher rates. The stablecoin thesis adds another wrinkle to the easier politics issue.

“Even relatively conservative estimates of stablecoin growth point to an increase in the net supply of loanable funds in the economy, pushing the neutral rate down,” he said. He added that if the neutral value is lower, “policy rates should also be lower than they would otherwise be to support a healthy economy.” [r-star] It’s constricting.”

Miran is expected to leave the Fed in January, when his term expires.