Fed Study Weighs Stablecoins for U.S. Money Supply
Federal Reserve researchers proposed a framework on Sept. 4 for deciding how stablecoins and other blockchain-based financial products could fit within U.S. money supply statistics. The authors, Kristen Payne and Mary-Frances Styczynski, examined payment stablecoins, tokenized bank deposits and tokenized money market funds, considering both the economic function of each asset and whether reliable data could be collected without counting the same money twice.
The authors stressed that the paper reflects their personal views. It does not represent a Federal Reserve policy decision or an active deliberation over changing the monetary aggregates.
How M1 and M2 Are Defined
The Federal Reserve publishes three monetary aggregates. The monetary base covers physical currency and bank reserves. M1 includes highly liquid money that can be spent on demand. M2 includes M1 plus less liquid savings products, such as small time deposits and retail money market funds.
Payment stablecoins are not currently included in M1 or M2, but their future classification could depend on how households and businesses use them.
Where Payment Stablecoins Could Fit
Under the researchers’ framework, an asset used mainly as a medium of exchange would normally belong in M1. An asset used primarily for short-term savings would be more consistent with the non-M1 portion of M2. Payment stablecoins could fall into either category: Tokens used for household purchases, business payments or instant transfers would share the transactional features of M1. Stablecoins used primarily to trade cryptocurrencies or store value temporarily would resemble assets placed in M2.
The researchers used USD Coin (USDC) as the closest existing comparison, while noting that few payment stablecoins currently operate under the GENIUS Act framework. USDC is widely used as an on-chain settlement asset, but users also hold it between trades or place it in products offering indirect rewards.
The distinction cannot be settled by technology alone. A dollar token can move instantly while still functioning mainly as a savings or trading instrument. The researchers therefore proposed observing its dominant use before assigning a classification.
This functional approach also explains why the Federal Reserve previously changed its definitions. In 2020, savings deposits moved into M1 after regulatory changes made them more readily transferable. The latest monetary aggregate definitions continue to measure M1 and M2 according to liquidity and economic use.
Stablecoin Reserves Create a Double-Counting Risk
Adding stablecoins to M1 or M2 would not be as simple as counting every token in circulation. Issuers hold reserve assets supporting those tokens, and some of those assets may already appear elsewhere in the monetary aggregates.
A stablecoin reserve can contain bank deposits, Treasury bills and other permitted liquid instruments. Bank deposits already appear in M1 or M2. Retail government money market funds may also form part of M2. Counting the stablecoin alongside those reserve holdings could inflate the measured money supply unless statisticians make an adjustment.
Treasury bills do not form part of M1 or M2. As a result, the size of the adjustment would depend on each issuer’s reserve composition rather than the stablecoin’s total circulation alone.
Reporting and Global Circulation Challenges
The GENIUS Act’s disclosure requirements could provide part of the necessary data. The law requires permitted issuers to publish information about their reserve holdings. However, regulators still need common reporting standards that identify circulating supply, reserve composition and potentially inaccessible or frozen tokens.
Implementation remains unfinished. The OCC’s proposed rulemaking — addressing reserves, redemptions, risk management and issuer supervision — has not been completed, as covered in crypto.news reporting. Stablecoin circulation also extends beyond U.S. borders: A token issued by a regulated U.S. company can pass between wallets anywhere. Public blockchains normally reveal addresses and transactions, but not the holder’s reliable geographic location. The researchers said separating domestic circulation from international use may therefore require additional reporting.
Tokenized Deposits Are Already Counted as Money
Tokenized deposits require different treatment because they remain liabilities of regulated banks. Tokenization changes how the deposit is recorded and transferred, but does not automatically change its legal or economic character.
A tokenized checking deposit remains immediately accessible and can function as a medium of exchange, and is therefore included in M1 alongside conventional checking deposits. A tokenized small time deposit would remain a savings product and enter the non-M1 portion of M2.
Banks already report these balances through the same regulatory forms used for traditional deposits. The Federal Reserve does not currently separate tokenized balances from deposits maintained through conventional banking systems.
No Additional Double-Counting for Tokenized Deposits
The researchers found no additional double-counting problem for tokenized deposits. Their underlying bank assets, including loans and securities, are generally outside the monetary aggregates. Vault cash is already adjusted when the Federal Reserve calculates currency held by the public.
Separate reporting could still become useful. Tracking tokenized deposits independently would give researchers a clearer view of how quickly banks and customers are adopting blockchain settlement. Several institutions are already testing this model, including projects covered in crypto.news examinations. More recent banking initiatives have also explored shared networks for programmable deposits and corporate payments. Unlike stablecoins, these instruments represent direct claims against an issuing bank.
Tokenized Money Market Funds Remain in M2
Tokenized money market funds represent shares in regulated investment funds rather than bank deposits or payment stablecoins. Investors hold a security backed by short-term assets and receive the income produced by the portfolio.
Retail money market funds already form part of M2. Tokenizing their shares does not remove them from that category, and they remain commingled with traditional fund shares in data supplied through the Investment Company Institute.
The researchers classified these funds mainly as stores of value. Although blockchain transfers can occur quickly, converting fund shares into cash still requires redemption, and that process typically takes one or two business days.
Tokenized funds are increasingly used as collateral, in cross-border transactions and for on-chain lending. If direct payment use eventually becomes their main function, the authors said their classification could be reconsidered — a conditional assessment, not a planned change.
The products also differ from stablecoins in who receives the return. Tokenized money market funds generally pass portfolio income to shareholders, while payment stablecoin issuers retain reserve income under the model examined by the researchers.
What Would It Take to Add Stablecoins to M1 or M2?
The research does not create a timetable for adding stablecoins to M1 or M2. It instead identifies the tests that would need to be satisfied before the Federal Reserve could publish reliable figures.
Officials would need standardized circulation data, a consistent reporting channel and a method for deducting reserve assets already captured elsewhere. They would also need to decide whether the statistics should include global holdings of U.S.-issued tokens or only holdings associated with domestic users.
Stablecoin use would then need to be assessed over time. Predominantly transactional use would support M1, while trading and savings behavior would support M2. A mixed pattern could require a more detailed statistical treatment.
Until those questions are resolved and the Federal Reserve formally changes its methodology, payment stablecoins remain outside the published U.S. monetary aggregates. The Sept. 4 paper offers an analytical path, but it does not establish new policy.
