Stablecoins are becoming the next policy challenge for the Walsh-era Federal Reserve. Fed Governor Christopher Waller has formally added stablecoins to the research agenda for the international role of the dollar, viewing them as a key transmission channel affecting bank funding, short-term Treasury demand and global dollar liquidity. With the combined market cap of USDT and USDC surpassing $150 billion, issues such as reserve management transparency, redemption mechanism design and the structural growth of overseas demand are triggering new concerns at the Fed regarding the effectiveness of monetary policy implementation and financial system resilience.
Stablecoins as a Transmission Channel for the Dollar's International Role
In recent public remarks and research papers, Waller pointed out that the issuance and redemption mechanisms of stablecoins essentially create and destroy dollar-denominated on-chain liabilities. When overseas users enter the crypto market by purchasing USDT or USDC, their demand for stablecoins directly translates into demand for short-term U.S. Treasuries (since stablecoin reserve assets are roughly 70-80% composed of U.S. Treasuries and repurchase agreements). Waller argues that this chain makes stablecoins a new conduit for the outward transmission of dollar liquidity, potentially diverting cross-border payment volume from the traditional banking system while altering the Fed's ability to control the federal funds rate and the interest rate corridor.
Scale Effects of USDT and USDC and Reserve Risks
As of June 2026, USDT's market cap stands at approximately $105 billion and USDC's at about $50 billion, totaling over $155 billion—close to the aggregate assets of the world's top 50 banks. However, the transparency of stablecoin reserve assets has long been controversial. U.S. stablecoin legislation (such as the Lummis-Gillibrand bill) requires Tether and Circle to maintain 100% reserves and undergo monthly audits, but actual audit frequency and reserve composition details remain insufficient. Waller is particularly concerned about redemption stress testing: in extreme market conditions, whether the on-chain liquidity of stablecoins can support large-scale redemptions without causing a discount to their peg, and whether that discount could transmit selling pressure to the short-term Treasury market.
Two-Way Impact on Global Dollar Liquidity
The growth in overseas demand for stablecoins may reinforce the dollar's international status but also creates policy spillover effects. On one hand, users in emerging markets use stablecoins to hedge against local currency depreciation, expanding the dollar's use radius. On the other hand, the on-chain issuance of stablecoins is independent of the Fed's balance sheet, meaning the central bank cannot directly control the total amount or direction of dollar liquidity being created. Waller believes that if the stablecoin market grows further to hundreds of billions, the reserve management behavior of issuers (e.g., concentrated accumulation or sale of short-term Treasuries) could exert systemic effects on short-term interest rates and the repo market, undermining the effectiveness of the Fed's open market operations in managing liquidity.
Overall, Waller's inclusion of stablecoins in the Fed's research agenda marks a step toward evaluating this asset class from the perspective of monetary policy transmission mechanism. In the future, reserve requirements, audit standards and cross-border payment compliance for stablecoins may accelerate toward unification, and the market dominance of USDT and USDC will face competition from U.S.-regulated stablecoins and central bank digital currencies. Source: MarsBit News.