Stablecoins Won’t Inflate The Money Supply. Here’s Why.

Key Points

1. The GENIUS Act, signed by President Trump, establishes a regulatory framework for dollar-backed stablecoins, requiring issuers to hold short-term U.S. Treasurys or cash equivalents.

2. Stablecoins do not expand the money supply because they are fully backed by reserves, similar to how the Fed manages bank reserves and Treasurys.

3. Unlike bank reserves or T-bills, stablecoin accounts currently do not pay interest, which limits their inflationary impact on monetary policy.

4. The primary risk to stablecoins stems from potential liquidity crises if U.S. Treasurys lose their risk-free status, not from the stablecoins themselves.

5. The GENIUS Act shifts regulatory focus to Congress rather than the Fed, reflecting changes in monetary policy tools since the 2008 financial crisis.