Stablecoins and Their Potential Impact on the U.S. Economy
In a recent address, Federal Reserve Governor Stephen Milan expressed his view that stablecoins have the potential to initiate a financial “reboot” in the United States, which could, in turn, help reduce interest rates.
Speaking at the 2025 BCVC Summit at the Harvard Club in New York City, Milan discussed what he called the “global stablecoin glut” and its effects on monetary policy. He is the newest member confirmed by the Federal Reserve and has previously chaired President Donald Trump’s Council of Economic Advisers.
“I’m thrilled to discuss stablecoins today. While some may dismiss them, they have swiftly become an integral part of the financial landscape,” Milan remarked at the start of his address.
Milan noted that stablecoins were initially created to facilitate cryptocurrency trading, but their growth has been propelled by offering users a reliable store of value, a means of payment, and a way to move capital quickly across borders.
A stablecoin is essentially a digital representation of a fiat currency, like the US dollar, and allows for much faster transaction confirmations compared to traditional banking methods.
He highlighted the recent passing of the GENIUS Act, which establishes a regulatory framework for stablecoins, stating that it would help to expand their role and reinforce them as a fundamental component of the payment system.
President Trump has voiced ambitions to transform the U.S. into the global epicenter for cryptocurrency.
Milan further explained that stablecoins bolster the dollar’s global dominance by allowing more individuals worldwide to hold and exchange assets in the trusted currency.
He emphasized that as interest in stablecoins grows, it will decrease borrowing costs and interest rates for the U.S. government, driven by this heightened interest.
“My main point is that stablecoins have already increased the demand for U.S. Treasury securities and other dollar-denominated assets by international buyers. This demand is predicted to keep growing, which, all things being equal, lowers the government’s borrowing costs.”
“As a central banker, I’m focused on this trend that might apply downward pressure on a key guideline for monetary policymakers known as r*. This neutral interest rate, or r*, is significant as it neither stimulates nor restricts economic activity during optimal economic conditions.”
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A study by researchers Azimonti and Quadrini estimated that if stablecoins become widely utilized and fully backed by U.S. securities by 2024, they could lower interest rates by up to 40 basis points.
He clarified that the GENIUS Act mandates U.S. stablecoin issuers to back each stablecoin with a one-to-one ratio of bank deposits, short-term Treasury bills, and other government securities.
Milan projected that the emerging stablecoin market could expand to trillions of dollars, leading to significant demand for Treasury and American banking assets from stablecoin issuers.
Federal Reserve officials estimate that stablecoin adoption could reach between $1 trillion to $3 trillion by the end of this decade. To put that in perspective, the Fed increased its U.S. Treasury holdings by just over $3 trillion during recent quantitative easing to address the pandemic. Currently, there are less than $7 trillion in total Treasury securities available. If these projections hold true, the demand from stablecoins will be impossible to overlook.
Milan’s assertions align with Treasury Secretary Scott Bessent’s prior comments, who indicated that stablecoins might evolve into a $3.7 trillion market by the decade’s end. The passage of the GENIUS Act makes this scenario more feasible. A flourishing stablecoin ecosystem could elevate private sector demand for U.S. Treasuries, consequently reducing government borrowing costs and helping to manage national debt. It could also introduce millions of new users to the digital asset economy based on dollars globally, which seems beneficial for all parties involved.
Milan projected that stablecoins will likely see broad adoption in both emerging markets and developed countries, especially as the latter may have extensive regulations affecting payment systems and the former often lack banking access.
“The depth of America’s capital markets fosters economic growth, supports innovation, and allocates resources effectively. However, much like physical infrastructure, we may need to rethink financial infrastructure. Stablecoins could play a key role in simplifying dollar transactions both domestically and internationally,” he stated.
He concluded by emphasizing that extensive research on stablecoins has been conducted since their introduction a decade ago, but the prospect of rapid growth makes it critical to understand their potential impact on monetary policy, both in the U.S. and globally.
