Federal Reserve Note Flags Dollar Double-Counting if USDC Enters M1 or M2

Fed Staff Note Weighs M1 and M2 Treatment

Payment stablecoins sit outside every official United States money supply measure today, but a Federal Reserve research note released on Sept. 4 sketches the accounting path regulators would confront if that changes. The staff analysis, which our desk has read in full, argues that folding regulated payment stablecoins into M1 or M2 risks counting the same dollar twice — and that any future classification should rest on four tests, beginning with the token's dominant economic use. M1, the narrowest aggregate, comprises currency plus highly liquid assets households and firms can spend immediately; M2 adds savings-type instruments such as small time deposits and retail money market funds. If stablecoins mostly function as a store of value or as trading liquidity for digital-asset markets, the researchers suggest M2 treatment could be the better fit. If they become a genuine everyday payment rail — competing with bank apps and retail brokerages like Robinhood — their instant transferability could justify M1 status.

The harder problem is the reserve side. The GENIUS Act, the federal stablecoin statute, obliges licensed issuers to hold identifiable reserves at a minimum 1:1 ratio and publish reserve details monthly, and the permitted pool includes bank deposits, U.S. Treasuries and government money market funds — precisely the assets already captured inside M1 and M2. Walk through the mechanics: an issuer takes in dollars, parks them in a bank deposit or MMF, then mints a stablecoin of identical face value. If the token's face value is then added to an aggregate that already contains its reserves, one dollar gets tallied twice. The note stresses that not every reserve overlaps — only assets already counted in M1 or M2 create duplication — so the distortion varies with each issuer's reserve mix. The authors therefore flag four assessment factors: primary economic use, whether reserves are already inside the aggregates, the split between domestic and offshore circulating supply, and whether on-chain transfers represent real payments or complex financial transactions.

USDC illustrates the measurement gap. Most of Circle's reserves sit in the Circle Reserve Fund, an SEC-registered government money market fund holding cash, short-term Treasuries and overnight repurchase agreements; July attestations also showed Treasuries held outside the fund and cash at regulated institutions. As of July 31, USDC in circulation stood at $71.826 billion against reserve fair value of $71.904 billion. Yet even those figures cannot yield the net addition to M1 or M2, because the portion of reserves already counted inside the aggregates must first be isolated and stripped out. Part of any measured increase, the researchers caution, would be a reclassification of existing dollars rather than newly created purchasing power. Crucially, the note is independent staff research reflecting personal views — it is not part of Fed policymaking, and existing M1 and M2 definitions remain unchanged.

Bank of Korea Finds FX Spillover

A separate central-bank paper shows why these questions extend beyond monetary statistics into foreign exchange. A Bank of Korea study by researchers Jihyun Kim and Sangheum Cho examined what happened when Binance launched direct trading between local currencies and dollar-pegged stablecoins such as USDT and USDC, using pairing dates across 12 currencies spanning 2019 to 2025. The listings let retail investors buy stablecoins with fiat while professional market makers — filling order types across both sides of the book — supplied the tokens. To hedge, those market makers sell the local currency and buy dollars in the FX market, creating a channel through which stablecoin demand reaches exchange rates.

The measured effects were concrete. Local stablecoin premiums fell by roughly 0.33 to 0.38 percentage points after Binance introduced fiat-stablecoin pairs, and tokens tended to flow from Binance to local exchanges whenever local prices rose above the global venue's. Buying pressure in paired currencies correlated with local currency depreciation; a one-standard-deviation rise in Google searches for Bitcoin, used as a proxy for crypto investment demand, was associated with a 0.118% depreciation of the Brazilian real and a 0.109 percentage point lift in Brazil's stablecoin premium. Korea, which lacks a direct Binance won-stablecoin pair, showed no significant exchange-rate response — buying pressure instead raised the local premium. The stakes at home are sizable: won-denominated stablecoin purchases reached $64 billion in the 12 months through June 2025, making Korea the largest local-currency stablecoin market in Asia-Pacific according to Chainalysis data. The authors note that deeper FX liquidity and wider offshore use of the won would help absorb shocks as these links strengthen. Readers tracking the market in real time can follow live spot and futures prices on Bybit.

GENIUS Act Reserves Are the Crux

Our read is that both papers describe the same threshold moment: stablecoins have grown large enough that central banks now treat them as monetary statistics and FX variables, not crypto curiosities. The GENIUS Act's own text binds licensed issuers to the 1:1 reserve and monthly disclosure regime — and because those permitted reserves already live inside M1 and M2, the double-counting caveat is structural, not hypothetical. Households holding tokens in a Tangem wallet or on any venue are, in effect, holding repackaged deposits. Note the distinction: the Fed document is staff research and binds no one, while the GENIUS Act is enacted law — the measurement problem it creates is now official, even if the Fed has not yet decided to measure it.