The macroeconomics of stablecoins

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.