Fed's Miran Says Stablecoins Could Put Downward Pressure on Rates

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00:00Even relatively conservative estimates of stablecoin growth imply an increase in the

00:05net supply of loanable funds in the economy that pushes down R-star.

00:09If R-star is lower, policy rates should also be lower than they would otherwise be to support

00:14a healthy economy.

00:15A failure of the central bank to cut rates in response to a reduction in R-star is contractionary.

00:22If a global stablecoin glut looks like a global saving glut, some other consequences may be

00:26replicated too.

00:28For instance, a lower R-star increases the odds that the zero lower bound binds in the

00:32future, limiting the ability of short-term interest rates to move down to provide accommodation

00:37but not restraining their ability to move up to restrict activity.

00:41Markets may expect policy to spend more time at the zero lower bound because of that inability

00:45to provide accommodation and get away from zero.

00:48That may make the Fed funds rate more volatile to the upside with respect to other financial

00:52conditions, even as downside volatility remains muted by the zero lower bound, simulating elements

00:57of former chairman Alan Greenspan's conundrum.

01:00Moreover, if a global stablecoin glut is driven by flows out of foreign currencies and into

01:05the US dollar, it will, all else equal, make the dollar stronger.

01:09Depending on the strength of this effect relative to other forces affecting the Fed's price stability

01:13and maximum employment mandates, that might be something that monetary policy responds to.