IMF Working Paper Reveals Stablecoins Now Move US Treasury Yields, Reshaping the Boundary Between Crypto and Monetary Policy

A landmark IMF Working Paper established, with rigorous econometric evidence, what financial market observers had long suspected: stablecoins — the dollar-pegged digital assets that have grown from a niche settlement tool to a $300 billion market — now significantly influence short-term US Treasury yields and have become a novel channel of monetary policy transmission. The paper, titled “Stablecoin Shocks” and published as IMF Working Paper 2026/044, represents one of the most technically sophisticated analyses of the intersection between the crypto economy and traditional financial markets, and its findings have implications for regulators, central bankers and investors across the global financial system.

The authors develop novel measures of stablecoin shocks — unexpected changes in stablecoin demand — and use heteroskedasticity-based identification within an event-study and structural vector autoregression framework to isolate the causal effects of stablecoin adoption on financial markets. The methodology is designed to distinguish genuine stablecoin demand shocks from coincident movements in Treasury markets driven by other factors, providing the cleanest causal evidence yet assembled on the stablecoin-Treasury yield relationship.

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The Core Finding: Stablecoin Demand Lowers Short-Term Treasury Yields

The paper’s most consequential empirical finding is that stablecoin demand shocks have triggered persistent declines in short-term Treasury yields, alongside a depreciation of the US dollar and gradual spillovers into crypto and equity markets. The causal mechanism is intuitive once understood: when investors acquire stablecoins — particularly USDC and USDT, which together dominate more than 90% of the stablecoin market — the issuers of those stablecoins (Circle and Tether) receive fiat dollars and invest them in short-duration US Treasury bills as reserve assets. This creates an additional, price-inelastic buyer of Treasury bills that exerts downward pressure on short-term yields.

The earlier Bank of International Settlements working paper on stablecoins and safe asset prices, also referenced in the academic literature, estimated that a $3.5 billion inflow into stablecoins lowers 3-month T-bill yields by approximately 2–2.5 basis points. The IMF paper extends this finding, demonstrating that the effects are persistent rather than transitory — meaning that the yield impact does not immediately reverse when the stablecoin flow subsides — and that asymmetric dynamics are present: stablecoin outflows tend to push yields up by a larger magnitude (6–8 basis points) than inflows push them down.

The Scale of the Stablecoin Treasury Footprint

To appreciate the policy significance of these findings, it helps to understand how large the stablecoin footprint in US Treasury markets has become. Circle and Tether reported holdings in US T-bills representing $14 billion and $94 billion respectively as of December 2024 — a combined $108 billion, representing approximately 1.7% of the total US T-bill market outstanding of $6.186 trillion. While this may seem modest as a share of the total market, the concentration in the short-duration segment — where stablecoin issuers prefer to hold reserves for liquidity reasons — is significantly higher. At times of T-bill scarcity, the price impact of stablecoin flows is amplified: the BIS research estimated that during periods of bill scarcity, the same $3.5 billion inflow could compress 3-month yields by 5–8 basis points — roughly double the baseline estimate.

The US Treasury market dominance of stablecoins is not static. Projections suggest that the stablecoin market could reach $2 trillion by 2028 — with much of this backed by Treasury securities — creating a much larger and more systemically significant footprint in government bond markets. If stablecoin issuers continue to hold primarily short-duration T-bills as reserves, the US government’s issuance decisions could gradually shift toward producing more short-term paper to accommodate this new class of captive buyer. This would have implications for the maturity structure of US public debt and potentially for the long-term dynamics of the yield curve.

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Spillovers Into Equity and Crypto Markets

The IMF paper documents that stablecoin demand shocks do not remain contained within Treasury markets — they gradually spill over into crypto and equity markets. The crypto market spillover is intuitive: an increase in stablecoin adoption often precedes or accompanies increased activity in the broader crypto ecosystem, as stablecoins serve as the medium of exchange for purchasing other digital assets. The equity market spillover is more subtle: if stablecoin inflows compress short-term yields, the lower discount rate applied to near-term corporate cash flows provides a modest support to equity valuations — a channel that is small in magnitude but statistically detectable.

The paper also documents heterogeneous effects across firms. Payment providers benefit from greater stablecoin adoption — companies in the payment processing and digital finance infrastructure space see positive equity market reactions when stablecoin demand increases, reflecting the expectation that growing stablecoin usage will increase transaction volumes and revenues for the payment rail operators who enable them. Banks — including community and small banks — show no evidence of priced disintermediation risk: contrary to early theoretical predictions that stablecoins would draw deposits away from banks and weaken their funding base, the IMF paper finds no statistically significant negative effect on bank equity valuations from stablecoin demand shocks.

What This Means for Monetary Policy

The most profound implication of the IMF paper’s findings is for the Federal Reserve’s understanding of its own monetary transmission mechanism. The traditional model of monetary policy transmission runs from the Fed’s federal funds rate target through short-term interbank rates, to bank lending rates, to consumer and business borrowing costs, to economic activity and inflation. Stablecoins introduce a new channel: private sector demand for stablecoins, driven by crypto market conditions and cross-border payment needs, creates flows into US T-bills that influence the very short-term interest rates that are the first link in the monetary policy transmission chain.

This means that Fed policy actions are now being partially offset or amplified by stablecoin market dynamics. When the Fed wants to tighten financial conditions by raising short-term rates, a surge in stablecoin demand — driven by, say, a crypto market boom — creates additional T-bill buying that counteracts the Fed’s desired upward rate movement. Conversely, when stablecoin outflows occur (as they do during crypto market stress events), the forced selling of T-bill reserves by stablecoin issuers pushes short-term rates up — tightening financial conditions independently of any Fed action.

The IMF’s findings also highlight the sovereign-stablecoin nexus — the feedback loop between stablecoin issuers and the US Treasury market. A large-scale stablecoin redemption event (driven by, for example, a loss of confidence in a major stablecoin issuer) would require stablecoin issuers to rapidly sell Treasury reserves, potentially creating fire sale dynamics in a market already sensitive to sudden shifts in supply and demand. The IMF’s companion working paper on “From Par to Pressure” analyses precisely this risk, modelling how capital and liquidity buffers, reserve composition and redemption gates can be designed to minimise systemic risk from stablecoin runs.

Regulatory Implications: The CLARITY Act and Global Coordination

The IMF paper’s publication comes at a critical moment for US stablecoin regulation. The CLARITY Act, currently awaiting a Senate Banking Committee markup, would establish a comprehensive federal framework for stablecoin issuance, reserve requirements and redemption rights. The IMF’s evidence — that stablecoin demand shocks now meaningfully influence short-term Treasury yields — strengthens the case for requiring stablecoin issuers to hold high-quality liquid assets (primarily US T-bills) as reserves, as this both protects users and aligns the stablecoin reserve investment with assets that the US Treasury needs buyers for.

Internationally, the IMF has been developing a policy roadmap focused on reserve transparency, cross-border supervision and minimum capital standards for stablecoin issuers. The scale of stablecoin cross-border flows — which surpassed Bitcoin and Ethereum cross-border transaction flows in 2025, with trading volumes for USDT and USDC reaching $23 trillion in 2024 — means that national regulatory frameworks in isolation are insufficient. A fragmented global regulatory approach creates arbitrage opportunities that could lead stablecoin issuers to migrate to less regulated jurisdictions, potentially increasing rather than reducing systemic risk.

The IMF paper’s recommendation — that stablecoin demand be recognised as “a novel channel of asset-market transmission” and incorporated into central bank policy analysis and financial stability monitoring — represents a call for stablecoins to be treated as a legitimate and consequential part of the financial system rather than a fringe phenomenon. For the Federal Reserve, the Bank of England, the European Central Bank and central banks across emerging markets, this means updating monetary policy frameworks to account for the growing influence of private digital money on the government bond markets that are the primary instrument of monetary policy implementation.

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By: Montel Kamau

Serrari Financial Analyst

19th March, 2026