In brief:
₿- Fed researchers say payment stablecoins could potentially fit into M1 or M2 based on how they are used.
₿- The study could mark a step towards recognising stablecoins as a potential part of the modern U.S. monetary system.
Stablecoins could be recognised as part of the U.S.money supply, according to a new Federal Reserve study exploring where blockchain-based forms of money could fit within the country’s monetary statistics.
A Sept. 4 paper from Federal Reserve researchers examined payment stablecoins alongside tokenized bank deposits and tokenized money market funds, asking how these assets should be treated in measures such as M1 and M2. Rather than classifying them by underlying technology, the researchers proposed focusing on how the assets function in the economy, how liquid they are, and whether their use can be measured reliably.
Payment use could put stablecoins in M1
The proposal could give stablecoins a new role in discussions about what constitutes money in the digital economy. Payment stablecoins are currently excluded from M1 and M2, but their growing use for transfers, payments and on-chain settlement could eventually make their treatment within monetary statistics more relevant.
M1 measures the most liquid forms of money available for immediate spending, while M2 includes M1 plus less-liquid savings assets such as savings deposits and retail money market funds.
The researchers’ framework distinguishes between stablecoins used for transactions and those primarily held for other purposes. Tokens regularly used by households and businesses to make payments or transfer funds could potentially have characteristics consistent with M1, which measures highly liquid money available for spending.
Stablecoins held mainly for cryptocurrency trading or short-term value storage could instead be more closely aligned with the non-M1 component of M2. The researchers identified USDC as the closest existing example when considering how payment stablecoins currently operate.
That distinction matters because the same digital dollar can serve different purposes. A stablecoin may move across a blockchain within seconds, yet its holder could still be using it primarily as a temporary store of value rather than as transactional money. The researchers therefore argued that actual economic use, rather than speed or blockchain functionality alone, should guide its classification.
Counting stablecoins could create a new problem
Adding stablecoins to the U.S. money supply would not simply mean taking their total circulation and adding it to M1 or M2. Their backing creates a potential double-counting issue.
Stablecoin issuers can hold reserves including bank deposits and U.S. Treasury bills. Bank deposits are already represented in existing monetary aggregates, meaning that counting both the stablecoins and certain assets backing them could overstate the amount of money in circulation.
Reliable data would therefore be critical. The researchers pointed to the need for standardized information covering stablecoin circulation and reserve composition, as well as adjustments for reserve assets already included in M1 or M2.
The global nature of blockchain networks adds another complication. U.S. -issued stablecoins can circulate between wallets worldwide, while public blockchain data does not necessarily identify where the people or businesses controlling those wallets are located.
The Fed has not changed its money supply rules
The GENIUS Act could help provide some of the information needed for future statistical treatment because authorised payment stablecoin issuers are required to report details about their reserves. However, additional standards would be necessary before stablecoin data could be incorporated into the Federal Reserve’s monetary statistics.
For now, nothing has changed in the official definition of M1 or M2. The Sept. 4 paper represents the researchers’ analysis and not a Federal Reserve policy decision or an active proposal to change the monetary aggregates.
Even so, the study marks an important development for the stablecoin sector. Federal Reserve researchers are now examining a framework under which blockchain-based dollars could potentially be measured alongside traditional forms of money. If payment stablecoins become widely used for everyday transactions, the question may eventually shift from whether they resemble money to where within the money supply they should be counted.
Disclaimer: The content of this article is for informational purposes only and does not constitute financial, investment, or trading advice. Readers should conduct their own research and consult a qualified cryptocurrency advisor before making any investment decisions.
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Rodcas Consulting Group