Fed Study Says Stablecoins Could One Day Be Counted in M1 or M2

Use case would shape classification

The paper says any eventual classification of payment stablecoins would turn on economic function rather than technology alone. If households and businesses primarily use them for day-to-day transactions, that would support inclusion in M1, the measure associated with money readily available for spending. If they are used more as a short-term place to hold value, they would fit more naturally within M2.

The researchers, Kristen Payne and Mary-Frances Styczynski, also noted that usage patterns may not be static. A mixed or changing pattern could require more detailed statistical treatment instead of a simple one-category decision. They emphasized that the paper reflects their own analysis, not a Federal Reserve decision or an active plan to revise the monetary aggregates.

Reserve backing creates a measurement problem

A central obstacle is that counting a stablecoin’s full circulating supply could overstate the money supply if the reserves behind it are already recorded elsewhere. Stablecoin issuers commonly hold bank deposits, Treasury bills and other liquid assets. Bank deposits already sit within M1 or M2, and some retail government money market fund holdings can also be part of M2.

That means statisticians would need a way to subtract reserve assets already captured in existing measures. The scale of any adjustment would vary by issuer because reserve composition differs from one stablecoin to another. Treasury bills, for example, are not part of M1 or M2, so reserves held in T-bills would not create the same overlap as reserves held in bank deposits.

The paper says disclosure rules under the GENIUS Act could help by requiring permitted issuers to publish reserve information. Even so, the researchers said common reporting standards would still be needed to identify circulating supply, reserve composition and tokens that may be frozen or otherwise inaccessible.

Tokenized deposits and funds already fit existing categories

The study draws a sharper line between stablecoins and tokenized bank deposits. Because tokenized deposits remain legal liabilities of regulated banks, they already belong in the monetary aggregates under the same logic as conventional deposits. A tokenized checking deposit would remain part of M1, while a tokenized small time deposit would stay in the non-M1 portion of M2.

The authors said tokenized deposits do not create the same double-counting issue because the underlying bank assets, such as loans and securities, are generally outside the money aggregates. At the same time, the Federal Reserve does not currently separate tokenized balances from traditional deposits in the reporting it receives from banks.

Retail tokenized money market funds are also treated as already accounted for. Since retail money market funds are included in M2 today, putting fund shares on blockchain rails does not by itself change their classification. The researchers described these products mainly as stores of value, noting that investors still generally need to redeem them for cash, a process that typically takes one or two business days.

What would need to happen next

Before any stablecoin could be included in published U.S. money supply measures, officials would need standardized data, a consistent reporting channel and a method for separating domestic use from global circulation. That last issue is important because U.S.-issued tokens can move across borders freely, while blockchain records usually do not reliably show the holder’s geographic location.

The paper does not set a timetable for change. Instead, it lays out conditions that would need to be met before the Federal Reserve could consider adjusting its methodology. Until then, payment stablecoins remain outside M1 and M2, and the Sept. 4 study stands as an analytical framework rather than a policy decision.