Stablecoins Meet the Mundell–Fleming Trilemma

Pablo Azar, Maryam Farboodi () and Nish Sinha
Additional contact information
Maryam Farboodi: https://mitsloan.mit.edu/faculty/directory/maryam-farboodi

No 1202, Staff Reports from Federal Reserve Bank of New York

Abstract: We study how stablecoins impact global capital flows by constructing a novel wallet-level dataset linking geotagged Ethereum Name Service registrations to stablecoin transactions around banking restrictions, currency crises, sanctions, and monetary disruptions. We find that crisis-country wallets experience significant increases in USD stablecoin inflows and receipt activity during crisis weeks. Motivated by this evidence, we develop a small-open-economy New Keynesian model in which household adoption of programmable stablecoins weakens the government’s enforcement technology for capital controls by making capital mobility endogenous. The empirical evidence validates the model’s central assumption that flight pressure increases stablecoin adoption. Stablecoins therefore tighten the Mundell–Fleming trilemma by reducing the government’s ability to sustain independent monetary policy under a fixed exchange-rate regime.

Keywords: Mundell–Fleming trilemma; capital controls; blockchain; stablecoins; financial infrastructure (search for similar items in EconPapers)
JEL-codes: E58 F32 F33 F38 G28 (search for similar items in EconPapers)
Pages: 26
Date: 2026-08-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1202.pdf Full-text (application/pdf)
https://www.newyorkfed.org/research/staff_reports/sr1202.html Summary (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:103702

Ordering information: This working paper can be ordered from

DOI: 10.59576/sr.1202

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().