Fed stablecoin research exposes how the same dollar could count twice in M1 or M2

A notable development has hit the crypto markets. A Federal Reserve staff note published Sept. 4 sketches a route for regulated payment stablecoins to enter M1 or the broader M2 money supply. Its accounting framework requires adjustments before gross circulation could enter either measure.

Payment stablecoins are excluded from the US monetary aggregates today. The new note makes future treatment depend on economic use, alongside adjustments for reserve assets already counted elsewhere and the separation of US circulation from global activity. Otherwise, a larger money-supply figure could partly reflect a new wrapper around dollars the system already measured.

Market Dynamics

The distinction matters for anyone using M1 or M2 to judge dollar liquidity. A statistical increase driven by reclassification says little about newly created purchasing power. The note is independent staff research, reflects only its authors' views, and is not part of a Federal Reserve policy deliberation.

Existing definitions remain unchanged, and the analysis presents conditional possibilities. Related Reading Stablecoins are quickly becoming the Kevin Warsh's Fed's next policy problem How stablecoins could fit, and what could be counted twice M1 is the narrowest official US money measure. It contains currency and highly liquid balances that households and businesses can use for transactions.

M2 includes M1 plus less liquid savings-type assets, including small-denomination time deposits and retail money market funds. The Fed authors apply that functional split to payment stablecoins. If the coins are used predominantly as a stable store of value or as liquidity for crypto trading, non-M1 M2 may be the better fit.

Market Impact

If they become a common medium of exchange for household and business payments, their immediate transferability could support an M1 classification. The framework remains conditional. The GENIUS Act requires permitted issuers to maintain at least 1:1 identifiable reserves and publish monthly reserve information, and leaves M1 or M2 assignment to a separate statistical decision.

The Fed says standardized circulation data and a reporting chain suitable for monetary-statistics compilation would still be required. The central stock-measurement problem sits on the reserve side. Under GENIUS, permitted reserves can include bank deposits, Treasury instruments, and government money funds.

The Fed note says some bank deposits and money-fund net assets are already captured in M1 or M2. If an issuer receives dollars, places part of them in a bank deposit or money fund, and issues stablecoins against that reserve, counting the tokens at face value could add a new line to the aggregate while part of the backing remains in another counted component. That is the same-dollar problem.

Crypto markets are watching this development closely as investors weigh its potential impact on prices.