Bank for International Settlements working paper finds baseline stablecoin adoption modestly lowers long run US output

The Bank for International Settlements published a working paper by Boris Hofmann, Matthias Kaldorf and Matthias Rottner analysing the macroeconomic effects of stablecoins in a quantitative model calibrated to the United States. The paper finds that stablecoins work through two opposing channels. A bank lending channel raises deposit rates, increases banks' funding costs and reduces credit supply, while a fiscal space channel lowers Treasury bill yields and sovereign borrowing costs as issuers buy short-term government debt. In the baseline scenario, where demand is domestic and issuers invest only in short-term government bonds, the bank lending effect slightly outweighs the fiscal benefit, leading to a modest long-run reduction in output. For a USD 2 trillion increase in stablecoin adoption, the model estimates a long-run output decline of around 0.03%. The paper also finds materially different outcomes under alternative reserve and demand structures. Requiring issuers to hold 50% of reserves in bank deposits deepens the long-run output decline to almost 0.07%, while holding 50% in unremunerated central bank reserves turns the effect positive at about 0.02%. If domestic and foreign demand are equal and jointly total USD 2 trillion, long-run output rises by around 0.04%. During the transition, the fiscal channel operates faster than the credit channel, producing a short-run output increase of about 0.3% over the first three years in the baseline case. The paper also suggests stablecoins can strengthen monetary policy transmission through the banking channel. The publication notes that the views are those of the authors and do not necessarily reflect those of the BIS or its member central banks.