Stablecoins May Soon Be Included in US Money Supply

A Federal Reserve staff note has proposed that payment stablecoins could be included in the M1 or M2 money supply, but only if their economic use is properly accounted for.

The current definition of M1 and M2 excludes stablecoins, which are digital tokens pegged to a fiat currency. However, with the rise of cryptocurrencies like USDC (US Dollar Coin) and Circle's USD Coin, there is growing interest in how these assets should be treated by monetary authorities.

The note suggests that if stablecoins become a common medium of exchange for household and business payments, they could be classified as M1. However, if they are used predominantly as a store of value or for liquidity, they may be better suited to the non-M1 M2 category.