Stablecoins and Safe Asset Prices, with Iñaki Aldasoro | Media coverage: Barron's, Bloomberg, CentralBanking.com, The Chosun Daily, The Economist, Financial Times [1], Financial Times [2], MNI, Nikkei
This paper examines the impact of dollar-backed stablecoin flows on short-term US Treasury yields using daily data from 2021 to 2025. Estimates from instrumented local projection regressions suggest that a 2-standard deviation inflow into stablecoins lowers 3-month Treasury yields by 2-2.5 basis points within 10 days, with limited to no spillover effects on longer tenors. We also find evidence of asymmetric effects: stablecoin outflows raise yields by two to three times as much as inflows lower them. Decomposing the yield impact by issuer shows that USDT (Tether) has the largest contribution followed by USDC (Circle), consistent with their relative size. Our results highlight stablecoins' growing footprint in safe asset markets, with implications for monetary policy transmission, stablecoin reserve transparency, and financial stability.
Does Sovereign Default Risk Explain Cryptocurrency Adoption? International Evidence from Mobile Apps, with Stephen A. Karolyi and Leili Pour Rostami
We study the macroeconomic drivers of cryptocurrency adoption using mobile app data for G20 countries. We find that sovereign default risk is a key driver. In penalized panel regressions, a 10% increase in sovereign CDS spreads is associated with a 2.8- 3.6% increase in crypto app usage and downloads. These effects are larger in emerging markets and when the social cost of default (SCD) is high. Event studies show a significant, persistent increase in crypto adoption after sovereign credit events associated with large CDS jumps, including events associated with high inflation, high SCD, and high political instability. Finally, we find that the effect of inflation on crypto adoption is non-linear and depends on the SCD.
Foreign-borne Interest Rate Risk
This paper shows that interest rates on deposits issued in the foreign offices of US banks (“foreign deposits”) are more sensitive to US monetary policy than rates on domestically issued deposits. Estimated deposit betas are roughly 20 percentage points larger for foreign deposits, a gap that persists across dollar-denominated accounts, under Fed rate hikes and cuts, and after controlling for other drivers of deposit betas. The uninsured status of foreign deposits explains only part of the difference. At the consolidated level, US banks with high foreign deposit shares will have more interest-sensitive liabilities, but they also hold more interest-sensitive assets. Despite this, these banks exhibit stronger stock price reactions to US monetary policy, suggesting that foreign deposits raise their net exposure to interest rate risk and investors price this risk.
Public Information and Stablecoin Runs, with Iñaki Aldasoro and Chanelle Duley | Media coverage: CentralBanking.com
Stablecoins are money-like tokens residing on distributed ledgers that promise par convertibility to a sovereign unit of account, largely the US dollar. We model the strategic interaction between stablecoin holders and a stablecoin issuer, focusing on the role of transparency and public information about the reserves stablecoin issuers hold to lend credibility to their promise, as well as the perceived volatility of those reserves. The effect of public disclosure on run risk is ambiguous: Greater transparency can lead to increased (reduced) run risk for sufficiently low (high) stablecoin holders' priors about collateral quality or transaction costs of conversion to fiat. If the distribution of collateral assets is fat-tailed, reserves are highly volatile and the stablecoin can enter a "ripe for run" region: par convertibility is resilient to small shocks to collateral value but breaks down in the face of large negative public shocks, even for high initial collateral values. Using a synthetic control approach to address endogeneity concerns and several case studies, we find empirical support for the testable implications of the model.
Sectoral Debt and Global Dollar Cycles in Developing Economies, with Joshua Aizenman, Bada Han and Yothin Jinjarak
We explore the role of sectoral debt in shaping business cycle dynamics and vulnerabiltiies to external shocks across a sample of 52 Emerging Market Economies (EMEs) and Frontier Market Economies (FMEs). High household debt levels and growth rates are associated with significantly lower GDP growth in high-income EMEs but not in less developed EMEs and FMEs. Among high-income EMEs, the contractionary effects of US dollar appreciations on economic activity are larger when expected household debt growth is high. The effects of US dollar appreciations on consumption and investment are increasing in expected household debt growth, with the effect on investment being more persistent. Our results underscore the importance of household debt in shaping growth and amplifying external shocks in EMEs, and present implications for macroeconomic stabilization policies.