Back to All Posts
Stablecoins and the Economy: What Happens to Banks and Government Budgets If the Market Hits $2 Trillion

Stablecoins and the Economy: What Happens to Banks and Government Budgets If the Market Hits $2 Trillion

By The STRIDE Team on June 25, 2026

The policy debate around stablecoins has settled into two camps. One side sees a threat to banks, draining deposits and weakening credit. The other sees a useful innovation in payments that governments should welcome. A BIS working paper from June 2026 suggests both camps are right at the same time, and that the deciding factor between them isn't adoption levels or technology. It's a set of reserve rules that look technical today but will shape incentives for years.

This post walks through what the model finds, why the $2 trillion scenario it studies is less hypothetical than it sounds, and what the results imply for banks, governments, and regulators. We've focused on the paper's macroeconomic channels rather than its full technical apparatus.

Why a $2 Trillion Scenario Is Worth Taking Seriously

The paper simulates stablecoin adoption rising to around $2 trillion. Two years ago that would have read as science fiction. It doesn't anymore.

Stablecoin supply contracted in 2023, then grew by about $70 billion in 2024. In 2025 the pattern broke: total market capitalization grew roughly 49 percent, from about $205 billion in January to over $300 billion by late in the year, a shift the Federal Reserve attributes in part to the GENIUS Act, signed in July 2025, which gave the US a formal regulatory framework for stablecoins. And Standard Chartered's digital assets research projects the market reaching $2 trillion by the end of 2028.

In other words, the paper's central scenario is roughly where one major bank's research desk expects the market to be within two to three years. Whether that forecast holds or not, the question the paper asks (what does an economy with $2 trillion in stablecoins look like?) has moved from thought experiment to planning assumption. You can follow how the rules shaping that trajectory evolve in our Stablecoin Regulation Tracker.

The Two Channels

The model identifies two opposing forces.

The first is the bank lending channel. When households hold more stablecoins, they hold fewer bank deposits. Banks lose access to cheap, stable funding, so they raise deposit rates to hold onto what's left. Those higher funding costs get passed to borrowers as higher loan rates. Firms borrow less, invest less, and output drops. This channel pulls the economy down.

The second is the fiscal space channel. Stablecoin issuers have to back their coins with safe assets, and in the paper's baseline they buy short-term Treasury bills. That extra demand pushes T-bill yields lower, which means the government pays less to service its debt. With that breathing room, it can cut distortionary taxes or spend more without borrowing more. This channel pushes the economy up.

Neither channel is speculative. Stablecoin issuers are already among the largest buyers of US government debt, so the fiscal channel is visible in today's Treasury market, just at smaller scale.

What the Model Actually Finds

Calibrated to the US economy at $2 trillion of adoption, the long-run effect on output is modestly negative, roughly minus 0.03 percent. The bank lending channel wins, but only by a hair.

The number is small. The more interesting story is how sensitive it is to design choices:

  • If issuers are forced to hold bank deposits instead of (or alongside) Treasuries, the negative effect roughly doubles. The bank lending drag stays strong while the fiscal benefit shrinks.
  • If issuers have to hold a large share of reserves at the central bank, so the profits flow back to the public sector, the net effect flips positive.
  • Foreign demand for dollar stablecoins strengthens the fiscal channel without hurting domestic banks. When half the demand comes from abroad, the overall effect on US output turns positive.
  • At very high public debt levels (above 150 percent of GDP), or when the government already leans heavily on short-term bills, the fiscal channel grows strong enough to outweigh the bank lending drag.

In short, the macroeconomic impact of stablecoins isn't fixed. It depends on the regulatory perimeter and the fiscal context they operate in.

Short Run vs Long Run: The Timing Trap

One of the paper's most useful findings is about timing. During the transition to higher adoption, output actually rises for the first few years. For a $2 trillion increase, the model shows output up around 0.3 percent over the first three years.

The reason is speed. The fiscal benefits arrive fast: issuers buy T-bills, yields fall, and the government can cut taxes almost right away. The contractionary effects work slowly, because existing loans have long maturities and the capital stock adjusts gradually.

This creates a policy trap worth naming. If stablecoin growth feels expansionary for its first few years, the political pressure to address the slower-building bank lending drag will be weakest exactly when the design decisions are being made.

What This Implies for Different Stakeholders

Read factually, the model's results point in different directions for different players:

  • For banks, stablecoins don't just compete on payments. They compete for the cheap deposit funding that has long been a core advantage of the banking system. Counterintuitively, a framework that "protects" banks by forcing stablecoins to hold deposits with them makes the aggregate outcome worse, because it preserves the funding drag while shrinking the fiscal offset.
  • For governments and taxpayers, stablecoins create new structural demand for safe government debt. That widens fiscal space, but the model only delivers the benefit if the room is used to cut distortionary taxes rather than simply spending more.
  • For central banks, the model suggests stablecoins could strengthen monetary policy transmission. When households hold a wider menu of liquid assets, deposit rates respond more to policy rate changes, and banks pass those changes through to lending rates more forcefully.
  • For regulators writing reserve rules right now, the paper's core message is that reserve composition is not a consumer-protection detail. It's the variable that determines whether the macro effect of stablecoins lands slightly negative or slightly positive.

The Bottom Line

The paper doesn't claim stablecoins will transform or break the macroeconomy. Even at $2 to $3 trillion, the baseline effects stay modest, small enough that they shouldn't dominate the policy debate on their own.

What the analysis does show is that the balance between the two forces is adjustable, and it's being adjusted now, in reserve and ownership rules that read as technical fine print. It also shows that foreign demand for dollar stablecoins isn't neutral for the US: it delivers fiscal benefits without the corresponding pullback in domestic bank lending.

The difference between a slightly negative and a slightly positive macro impact may come down to details that few people outside the rulemaking process are watching. That seems like a good reason to watch them.

Source: BIS Working Paper No 1363, "The macroeconomics of stablecoins," by Boris Hofmann, Matthias Kaldorf and Matthias Rottner, June 2026. Market growth figures are drawn from DeFiLlama data, the Federal Reserve's April 2026 note on stablecoin developments, and Standard Chartered research projections. We focused on the paper's macroeconomic channels rather than its full technical model.

This article is for informational purposes only and does not constitute financial, investment, or legal advice.