- Fed Governor Stephen Miran highlighted in his recent speech that surging demand for stablecoin could ultimately push the US central bank to lower interest rates.
- The official projected the stablecoin industry’s market cap to reach $3 trillion.
The rising stablecoin demand is the key to sustaining lower interest rates. Federal Reserve Governor Stephen Miran highlighted this in his speech last Friday in New York. He also believes its market could surge to $3 trillion in the next five years.
Stablecoins Catalyzing an R-star Scenario
The central bank official explained that stablecoins pegged to the US dollar can pave the way to an “R-star” (r*) scenario. The condition exhibits a “real neutral” rate of interest that equilibrates the economy in the long run, neither expanding nor contracting at an economy with optimal level of employment. The emergence of an R-star would force the Fed to lower interest rates to avoid inadvertently slowing the economy.
Miran has advocated aggressively for lower interest rates since he assumed office in September this year, following President Donald Trump’s nomination. He notably proposed cutting down the figures by 50 basis points in October.
A $3 Trillion Industry
Citing a Fed study, Miran stated that the stablecoin sector could grow up to $3 trillion in the next five years. He credited these digital assets for significantly boosting demand for US Treasury bills and other dollar-denominated liquid assets, especially outside the US.
The central bank governor is confident that the trend will further gain momentum in the coming years. He claimed stablecoins could drive down the central bank’s rate by 0.4 percentage points.
To date, stablecoins have a market cap of $313.447 billion. This means the industry needs to pump the numbers by about 857.1% to reach Miran’s projection.
Dominating the market are US dollar-denominated stablecoins. Tether’s USDT accounts for over 58% of the float. Trailing it are Circle’s USDC, Ethena’s USDe, Dai’s DAI, and World Liberty Financial’s USD1.
GENIUS Act
Miran admitted that he views new regulations “skeptically.” However, he pointed out that he is bullish on the passage of the landmark GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins Act).
The Fed governor indicated that the GENIUS Act offers regulatory clarity and protection for stablecoin issuers and users. It likewise adds legitimacy for these types of digital assets and accountability for all players in the sector.
Most importantly, requires US-domiciled issuers to maintain reserves physically backed in safe and liquid US dollar-denominated assets. Miran said it’s the factor that could drive more demand for US Treasury assets.
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