Federal Reserve researchers have outlined a framework for determining how stablecoins and other blockchain-based financial products could eventually be incorporated into U.S. money supply statistics.
A Sept. 4 research paper examined payment stablecoins, tokenized bank deposits and tokenized money market funds, focusing on how their economic functions compare with assets already included in monetary aggregates and whether reliable data could be collected without creating double-counting problems. The researchers emphasized that the paper reflects their own views and does not represent a Federal Reserve policy decision or an active plan to change M1 or M2.
Payment stablecoins are currently excluded from M1 and M2, but their eventual classification could depend on how households and businesses primarily use them.
M1 covers highly liquid money that can be spent on demand, while M2 includes M1 along with certain less-liquid savings instruments, including small time deposits and retail money market funds.
Under the researchers’ proposed framework, assets primarily used as a medium of exchange would generally fit within M1. Products mainly used for short-term savings would be more consistent with the portion of M2 outside M1.
Payment stablecoins could potentially fall into either category. Stablecoins used for everyday purchases, business payments or immediate transfers would have characteristics similar to M1. Those primarily held between cryptocurrency trades or used as temporary stores of value could instead resemble assets included in M2.
The researchers used USDC as a practical comparison, while noting that relatively few payment stablecoins currently operate under the GENIUS Act framework. USDC is widely used for on-chain settlement, but it can also be held between trades or placed into products that provide indirect rewards.
The researchers argued that technology alone cannot determine the appropriate classification. A dollar-denominated token can transfer instantly while still being used primarily for trading or saving. Its dominant economic function would therefore need to be considered.
The Federal Reserve has previously adjusted monetary definitions based on changes in how financial products are used. In 2020, savings deposits were incorporated into M1 after regulatory changes made them more readily transferable.
Adding stablecoins to the monetary aggregates would also present a potential double-counting problem. Stablecoin issuers hold reserve assets backing the tokens, and some of those reserves may already be included in M1 or M2.
Reserves can include bank deposits, Treasury bills and other permitted liquid assets. Bank deposits already form part of M1 or M2, while retail government money market funds can also be included in M2. Counting both the stablecoins and qualifying reserve assets without adjustment could therefore overstate the amount of money in the economy.
Treasury bills, by contrast, are not included in M1 or M2. As a result, the necessary statistical adjustment would depend partly on the composition of each issuer’s reserves rather than simply the total number of stablecoins in circulation.
The disclosure requirements established under the GENIUS Act could provide some of the information needed to address the issue because permitted issuers are required to disclose reserve holdings. However, consistent reporting standards would still be needed to measure circulating supply, reserve composition and potentially inaccessible or frozen tokens.
Stablecoins also circulate internationally, creating another measurement challenge. A token issued by a U.S. company can be transferred between wallets anywhere in the world, while public blockchains generally identify addresses and transactions without reliably establishing the geographic location of the people controlling those wallets.
Tokenized bank deposits present a different case because they remain liabilities of regulated banks. Converting a conventional deposit into a token does not automatically change its legal or economic nature.
A tokenized checking deposit remains readily accessible and can be used as a medium of exchange, meaning it is included in M1 alongside conventional checking deposits. A tokenized small time deposit would remain a savings product and fall within the non-M1 portion of M2.
The Federal Reserve already receives reporting on these bank balances through regulatory forms used for conventional deposits, so tokenized deposits are not currently separated from traditional deposits in the monetary statistics. The researchers also found no additional double-counting issue because the underlying bank assets, such as loans and securities, generally fall outside the monetary aggregates.
Tokenized money market funds are similarly treated according to their existing economic structure. These products represent shares in regulated investment funds rather than bank deposits or payment stablecoins, with investors holding interests backed by short-term assets.
Retail money market funds are already included in M2, so tokenizing their shares does not automatically change their classification. The researchers primarily viewed these funds as stores of value because investors generally need to redeem their shares to convert them into cash, even if the token itself can be transferred rapidly on a blockchain.
Tokenized money market funds are increasingly being used in areas such as collateral, cross-border transactions and on-chain lending. If direct payment use eventually becomes their dominant function, their classification could potentially be reconsidered, although the researchers presented this only as a conditional possibility rather than a planned change.
The treatment of tokenized funds also differs from payment stablecoins in how returns are distributed. Money market funds generally pass portfolio income to shareholders, while stablecoin issuers retain income generated by their reserves under the model examined in the study.
The research does not establish a timetable for including stablecoins in M1 or M2. Instead, it identifies several issues that would need to be resolved before the Federal Reserve could produce reliable statistics.
These include developing standardized data on stablecoin circulation, establishing consistent reporting mechanisms and creating methods to exclude reserve assets already captured elsewhere in the monetary aggregates. Officials would also need to determine how to treat U.S.-issued stablecoins held outside the country.
Stablecoin usage would then need to be evaluated over time. Predominantly transactional use could support M1 classification, while savings or trading activity could point toward M2. A mixed pattern could require a more detailed statistical approach.
For now, payment stablecoins remain outside the Federal Reserve’s published M1 and M2 measures. The Sept. 4 research paper provides a framework for analyzing their potential treatment but does not represent a formal change in Federal Reserve policy.
