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

Fed Governor Stephen Miran recently addressed a group of economists in New York, where he discussed the potential impact of the increasing demand for dollar-denominated stablecoins on U.S. interest rates. Miran, who was appointed by President Donald Trump, highlighted how the surge in crypto tokens pegged to the dollar could potentially lower the “neutral” rate of interest, known as “r-star,” and consequently lead to a need for the Federal Reserve to lower its own policy rate to prevent unintentional economic slowdown.

Describing stablecoins as a looming “multitrillion-dollar elephant in the room for central bankers,” Miran emphasized how these digital assets are already driving up demand for U.S. Treasury bills and other dollar-denominated liquid assets among international buyers, with this trend expected to continue growing. He cited research indicating that the growth of stablecoins could reduce the Fed’s benchmark rate by 0.4 percentage point.

Miran’s advocacy for aggressive rate cuts during his tenure on the Fed board stems from his belief that the neutral rate is significantly lower than what many of his colleagues assume. By extending this argument to the realm of digital finance, he suggests that the rise of stablecoins could structurally lower borrowing costs for an extended period.

While Miran has previously focused on the importance of controlling inflation and avoiding hindrances to economic growth through high interest rates, his discussion on stablecoins introduces a new dimension to the case for maintaining accommodative monetary policy. He stressed that even conservative estimates of stablecoin growth imply an increase in the supply of loanable funds, which in turn exerts downward pressure on the neutral rate. Lowering policy rates to support a healthy economy becomes imperative in such a scenario, as failing to respond to a reduction in r-star could have contractionary effects.

As Miran is set to depart from the Fed in January upon the expiration of his term, his insights on the potential implications of stablecoins on interest rates serve as a thought-provoking contribution to the ongoing discussions surrounding monetary policy and digital finance.