A Federal Reserve staff note warns that regulated stablecoins could inflate official US money supply figures unless new accounting methods address reserve overlap and cross-border activity
The Federal Reserve's latest research exposes a fundamental flaw in how stablecoins could be counted in the US money supply: the same dollar might be tallied twice, distorting the true picture of dollar liquidity. If stablecoins are simply added to M1 or M2 without careful adjustments, the official numbers could balloon-not because new money was created, but because old dollars were wrapped in a new digital form.
Accounting for Overlap
The core of the problem lies in reserve composition. Under the GENIUS Act, stablecoin issuers must hold reserves like bank deposits, Treasuries, or government money market funds. But many of these assets are already included in M1 or M2. If a stablecoin issuer takes customer dollars, deposits them in a bank, and issues tokens against those deposits, counting both the bank deposit and the stablecoin at face value would double-count the same underlying dollar. The Fed staff note makes clear that only reserve assets already represented in the aggregates create this overlap, and the extent depends on the specific mix of reserves and how each is treated statistically.
Without a mechanism to consolidate these overlaps, the reported money supply could become artificially inflated. For anyone relying on M1 or M2 to gauge dollar liquidity, this would undermine the reliability of those measures. The note's authors stress that any future inclusion of stablecoins in official aggregates must be preceded by a rigorous accounting adjustment to avoid this pitfall.
Geography and Economic Use
Stablecoins add another layer of complexity by circulating globally, even when issued by US-regulated entities. Public blockchains do not reliably distinguish between tokens held by US residents and those held abroad. The GENIUS Act applies to US issuers but does not separate domestic from international activity, so additional reporting would be needed to isolate the portion of stablecoins relevant to the US money supply. Otherwise, global stablecoin circulation could distort US monetary statistics.
Economic function is equally critical. The Fed's framework asks whether stablecoins are used as transaction money-akin to cash and checking deposits in M1-or as savings and trading instruments, which would fit better in M2. Raw blockchain data is not enough: a single smart contract transaction can trigger multiple transfer events, and most transfer events occur within complex, bundled transactions. Treating every event as a payment would exaggerate the role of stablecoins in everyday commerce. The Fed points to the need for more granular data to determine how these tokens are actually used in practice.
Market Scale and Data Gaps
As of September 4, CryptoSlate reported the global stablecoin market at $292.1 billion across 73 assets, with USD Coin (USDC) alone accounting for $74.5 billion in market capitalization. Yet these figures say nothing about how much is held or used by US residents. For context, the Federal Reserve Economic Data (FRED) put US M2 at $23.218 trillion in July 2026. The scale of stablecoins is significant, but without adjustments for reserve overlap and geographic scope, their inclusion in M1 or M2 would blur the line between genuinely new liquidity and repackaged dollars.
These accounting challenges are not theoretical. The Fed's staff note is independent research, not official policy, but it lays out the technical hurdles that must be cleared before stablecoins can be integrated into US monetary statistics. Standardized reporting, reserve breakdowns, and transaction-level analysis are all prerequisites. Skipping these steps would compromise the integrity of the money supply data that markets, policymakers, and analysts depend on.
Policy Uncertainty and Next Steps
Despite the detailed framework, the Fed has not changed its official definitions of M1 or M2. The staff note outlines conditional possibilities, not imminent policy moves. The GENIUS Act mandates transparency from stablecoin issuers but leaves the statistical treatment of their tokens unresolved. Until the Fed develops a robust methodology for consolidating reserves and isolating US activity, stablecoins remain outside the official aggregates.
This debate over stablecoin accounting echoes broader regulatory uncertainty in US crypto policy. The SEC's recent decision to delay new fundraising rules for token issuers, as reported earlier, has left projects in limbo. The Fed's cautious approach to stablecoin classification reflects a similar reluctance to move forward without clear data and risk controls.
The Federal Reserve's staff have drawn a line in the sand: stablecoins will not be allowed to inflate the official money supply through statistical sleight of hand. The message is blunt-digital wrappers do not create new dollars, and the accounting must reflect economic reality, not token hype. Until the industry and regulators can deliver transparent, granular data on reserves, usage, and geography, stablecoins will remain in a statistical gray zone. The Fed's stance is a warning to both issuers and policymakers: shortcuts in monetary accounting risk undermining the credibility of the entire system.
Stablecoins are often described as digital dollars, but their treatment in monetary statistics is anything but straightforward. The challenge is not just technical-it is foundational. If stablecoins are to be counted as part of the US money supply, regulators must first solve the problems of reserve overlap, cross-border circulation, and economic function. Otherwise, the numbers will mislead more than they inform, and the promise of transparent, reliable digital money will remain unfulfilled.
