Stablecoins – cryptoassets designed to maintain a stable value relative to a reference asset, most commonly the US dollar – have become the dominant medium of exchange within the crypto ecosystem. Their market capitalisation has expanded rapidly in recent years and is forecast to expand further, though projections vary widely. While a growing literature examines their implications for payment and financial systems, the macroeconomic consequences of broader stablecoin adoption remain underexplored.
The authors of the report The macroeconomics of stablecoins, develop a quantitative macroeconomic model that embeds stablecoins within an integrated macro-finance and banking framework with distortionary fiscal policy. The model provides an analytical framework to evaluate the macroeconomic consequences of alternative stablecoin scenarios, including regulatory regimes governing reserve asset allocation.
„In the baseline specification, demand for stablecoins arises domestically and issuers invest exclusively in short-term government bonds. We then examine alternative regulatory and design scenarios in which issuers’ asset holdings may also include wholesale bank deposits and central bank reserves. We also assess a scenario where there is foreign demand for domestic stablecoins.’
The authors’s analysis suggests that stablecoin adoption affects the economy through two main channels: a bank lending channel and a fiscal space channel. The bank lending channel operates through banks’ deposit funding and credit supply, while the fiscal space channel operates through stablecoin issuers’ demand for Treasury bills and the government budget constraint. These channels have opposing effects on output.
Calibrated to the United States, the model predicts that, in the long run under our baseline specification, the contractionary effect of the bank lending channel dominates slightly. The net effect, however, depends on stablecoin regulatory design, the strength of foreign demand for stablecoins and fiscal conditions. The model also implies that the fiscal space channel acts more quickly during the transition and that stablecoins can amplify monetary policy transmission through bank lending.
We analyse the macroeconomic impact of stablecoins using a quantitative macroeconomic model. Stablecoins influence the economy through two opposing channels:
(i) a bank lending channel, as household demand for stablecoins raises deposit rates, increases bank funding costs, and reduces loan supply; and (ii) a fiscal space channel, as stablecoin issuers’ demand for Treasury bills lowers sovereign borrowing costs, expands fiscal space for tax reductions or higher spending.
Calibrated to the U.S., the model predicts that widespread stablecoin adoption modestly reduces long-run output, as the bank lending channel outweighs the fiscal space channel. However, the overall long-run impact may shift under alternative scenarios about stablecoin reserve asset regulation, the level of public debt and the strength of foreign demand.
Moreover, the fiscal space channel activates more quickly than the bank lending channel, resulting in significantly positive short-term output effects during the transition phase. Additionally, the model suggests a strengthening of monetary policy transmission via the bank lending channel.
More details: BIS Working Papers No 1363 – The macroeconomics of stablecoins
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