Highly relevant! "The macroeconomics of stablecoins" by Boris Hofmann, Matthias Kaldorf, and Matthias Rottner. "What are the macroeonomic implications of stablecoins? As stablecoin market capitalisation has grown rapidly and is projected to expand further, this question has become increasingly important. We develop a quantitative macroeconomic model with stablecoins and show that they affect the economy through two countervailing channels: a bank lending channel and a fiscal space channel. Calibrated to the U.S., the model predicts a modest decline in long-run output, although the net effect depends on reserve regulation, public debt and foreign demand." bundesbank.de/en/publication…

Super interesting! "The macroeconomics of stablecoins" by Boris Hofmann, Matthias Kaldorf, and Matthias Rottner. "Our analysis suggests that stablecoin adoption affects the economy through two main channels: a bank lending channel and a fiscal space channel. The bank lending channel operates through banks' deposit funding and credit supply, while the fiscal space channel operates through stablecoin issuers' demand for Treasury bills and the government budget constraint. These channels have opposing effects on output. Calibrated to the United States, the model predicts that, in the long run under our baseline specification, the contractionary effect of the bank lending channel dominates slightly. The net effect, however, depends on stablecoin regulatory design, the strength of foreign demand for stablecoins and fiscal conditions. The model also implies that the fiscal space channel acts more quickly during the transition and that stablecoins can amplify monetary policy transmission through bank lending." bis.org/publ/work1363.htm

Super interesting! "The perils of narrowing fiscal spaces" by Hanno Kase, Leonardo Melosi, Sebastian Rast, and Matthias Rottner. "When public debt is elevated, the fiscal cost of fighting inflation rises sharply, as interest rate hikes increase government interest expenditures. We formalize this mechanism in a nonlinear New Keynesian model with a state-dependent fiscal constraint on monetary policy. High debt may dampen the monetary response to inflation, generating an inflationary bias even though government debt remains fully fiscally backed. The interaction between high debt and inflationary cost-push shocks makes the fiscal limit more likely to bind, amplifying inflation. In demand-driven downturns, the fiscal constraint may become more restrictive than the zero lower bound, forcing the central bank to either print money to purchase excess debt or accept fiscal dominance." bis.org/publ/work1328.htm