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 the G20 countries. Among several factors, sovereign default risk is identified as a key determinant of crypto adoption. A 10% increase in sovereign CDS spreads is associated with a 2.9-4% increase in crypto app downloads and usage, and crypto adoption jumps in the months following news related to sovereign risk. These effects are larger in emerging markets and when ex ante sovereign default costs are high. We also find that the impact of inflation on crypto adoption is significantly influenced by the level of ex ante default costs.
Foreign-borne Interest Rate Risk
Interest rates paid on foreign deposits (deposits in the foreign offices of US banks) are more sensitive to US monetary policy than domestic deposit rates. This results in larger deposit betas on foreign deposits. Large foreign deposit betas can be accounted for by (i) the uninsured treatment of foreign deposits and (ii) foreign deposit rates' additional sensitivity to non-US monetary policy. Foreign deposit betas are large enough for foreign deposits to affect the risk profile of US banks and the bank sector. At the bank level, this is evidenced by US banks with high foreign deposit shares having stock prices that are more sensitive to US monetary policy. In aggregate, VAR-based simulations suggest that the sector-wide foreign deposit share affects the interest rate sensitivity of the bank sector.
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.