Stablecoin Surge Forces Fed to Reckon with Dollar's Dual-Edged Power

Federal Reserve Governor Stephen Miran has sounded the alarm on the explosive growth of stablecoins, warning that their potential to amass up to $3 trillion in global adoption by the end of the decade could force a fundamental recalibration of U.S. monetary policy, according to a Coindesk report. Speaking at the BCVC Summit 2025 in New York, Miran emphasized that stablecoins—digital assets pegged to the U.S. dollar—are not just a niche phenomenon but a "multitrillion-dollar elephant in the room for central bankers," a point highlighted in a Bloomberg report.

With demand driven largely by international users seeking access to dollar-denominated assets, Miran argued that stablecoins could strengthen the U.S. currency while simultaneously exerting downward pressure on interest rates, a concern raised in the Coindesk piece.

Miran's analysis hinges on the mechanics of stablecoin issuance. As platforms like Tether (USDT) and Circle (USDC) expand, they require larger reserves of U.S. Treasuries and cash equivalents to back their tokens. This surge in demand for safe assets, he noted, could drive up their prices and lower yields, effectively increasing the supply of loanable funds in the economy, as Bloomberg reported. "Even conservative estimates of stablecoin growth imply a reduction in the neutral interest rate—what we call R-star," Miran said, adding that the Federal Reserve may need to lower its policy rate to avoid an unintentionally contractionary stance, according to Investing.com. Some research cited by Miran suggests stablecoins could reduce R-star by as much as 40 basis points, according to a WRAL article.

The implications for monetary policy are profound. Miran, a Trump appointee to the Fed, has long advocated for aggressive rate cuts, arguing that the neutral rate is lower than many of his colleagues assume. His remarks tie stablecoin growth to broader economic forces, including immigration policy shifts and Trump-era tariffs, which he claims have already depressed the neutral rate, as noted in Bloomberg. A lower R-star, he warned, would necessitate a reevaluation of the Fed's tools to maintain price stability and maximum employment without stifling economic activity, a point also covered by Investing.com.

Regulatory frameworks like the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act)—the first major U.S. crypto law—add another layer of complexity. While the legislation mandates that stablecoins be fully reserved with cash or short-dated Treasuries, Miran suggested it may not directly enable yield for issuers, a view reflected in the Coindesk piece. This, he argued, could limit the drain on traditional bank deposits that some policymakers fear, redirecting demand instead to foreign users seeking dollar exposure, as the Coindesk reporting explains. However, the global adoption of stablecoins raises concerns about monetary autonomy, as seen in the European Central Bank's warnings that U.S.-backed stablecoin use in the EU could weaken its policy influence, a risk discussed in the Coindesk coverage.

Miran's comments also highlight the geopolitical stakes. By facilitating dollar holdings and transactions worldwide, stablecoins could reinforce the greenback's dominance, particularly as emerging markets seek alternatives to volatile local currencies, a theme explored in the Coindesk piece. Yet this expansion risks creating a feedback loop: stronger dollar demand could further depress yields on Treasuries, complicating the Fed's ability to manage inflation and employment goals, as Bloomberg has observed.

As the Fed grapples with these challenges, Miran's tenure—set to end in January—adds urgency to the debate, a timeline noted by Bloomberg. His calls for rapid rate cuts and policy adaptation reflect a broader tension between traditional monetary tools and the disruptive potential of digital assets. With stablecoin adoption accelerating and global regulators racing to establish guardrails, the Fed's response could shape the future of both digital finance and U.S. economic leadership.