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Federal Reserve Governor Wall: Heavy Use of Stablecoins Could Lower Neutral Interest Rate
BlockBeats News, November 8th, Federal Reserve Board Governor Milan stated at an event that the continued growth of stablecoins may significantly lower the future "neutral interest rate." This change implies that the Fed's policy rate should also be lowered accordingly; otherwise, it will create contractionary pressure on the economy.
Milan stated that even under a "relatively conservative" estimate, the expansion of stablecoin issuance would increase the net supply of lendable funds in the economy, thus exerting downward pressure on the neutral interest rate. He pointed out: "If the neutral interest rate decreases, the policy rate should also be lowered in sync to maintain a healthy economic operation. If the central bank refuses to cut interest rates after the neutral rate falls, it is a tightening behavior."
As a Fed Governor appointed by the Trump administration, Milan has recently called on the Federal Reserve to quickly implement several consecutive 50 basis point rate cuts to bring the policy rate back to what he considers a "closer to neutral" level. He emphasized that factors such as immigration policy adjustments and changes in tariff policies are driving the decline in the neutral interest rate, while the Fed's current policy rate is "far above the neutral level," imposing "significant constraints" on the economy.
Stablecoins are a type of digital currency pegged to a fiat currency (usually the US Dollar) with a relatively stable value. According to the latest U.S. legislation, stablecoin issuers must maintain reserves at a 1:1 ratio with cash and cash equivalents (including U.S. Treasuries). This means that as the scale of stablecoin issuance expands, the market's demand for U.S. Treasuries will also rise in parallel. (ChainDD Finance)
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