Fed Research Exposes Dollar Liquidity Risk in Stablecoin Accounting

The Federal Reserve has published research on how payment stablecoins could be treated in the M1 and M2 money supply measures. The note, written by staff members, suggests that regulated payment stablecoins could enter either measure depending on their economic use.

The researchers propose adjusting the accounting framework to accommodate gross circulation before it enters M1 or M2. They also highlight the need for evidence-based classification, as counting stablecoin transactions without considering their underlying reserve assets could lead to an inflated picture of dollar liquidity.

In particular, the note emphasizes that the same dollar could count twice if part of a bank deposit or money fund is used as backing for new stablecoins. The researchers acknowledge the difficulty in assessing the overlap between gross issuance and already-counted components.