Stablecoins, Inflation and the Settlement Hierarchy (Martin Summer)

Would widely adopted stablecoins affect the price level, and through which channels? We analyse this question in the monetary general-equilibrium framework of Dubey and Geanakoplos, in which payment capacity—money, bank credit and the spendable share of government bonds—determines nominal outcomes. Stablecoins backed by government debt open a channel of inflationary finance: the existing bond stock becomes spendable (a stock effect) and newly issued debt arrives spendable (a flow effect), with the price level rising in the payment capacity so created and in the breadth of adoption. Monetary policy can offset the rise, but only at the cost of suppressing the trade that bank credit finances. Beyond these bounded effects, current regulatory design does not close an escalation path on which stablecoins become a competing outside money, putting nominal determinacy at risk. Whether these effects materialise is largely a policy choice: they require adoption in ordinary payments, which regulation currently shapes.