Federal Reserve Study Proposes Framework for Stablecoin Classification

A recent Federal Reserve study has proposed a framework for classifying stablecoins and other blockchain-based financial products within U.S. money supply statistics. The researchers, Kristen Payne and Mary-Frances Styczynski, examined payment stablecoins, tokenized bank deposits, and tokenized money market funds in their study.

The authors considered both the economic function of each asset and whether reliable data could be collected without counting the same money twice. They noted that an asset used mainly as a medium of exchange would normally belong in M1, while an asset used primarily for short-term savings would be more consistent with the non-M1 portion of M2.

Payment stablecoins, such as USDC, could fall into either category depending on their dominant use. The researchers proposed observing the token's dominant use before assigning a classification, as its function can shift between transactions and storage of value.

The inclusion of stablecoins in M1 or M2 would not be as simple as counting every token in circulation due to the risk of double-counting reserve assets. Issuers hold reserve assets supporting those tokens, which may already appear elsewhere in the monetary aggregates.