The Fed's New Yardstick: Measuring Stablecoins as Money, But Double Counting Threatens the Math

The Fed just dropped a FEDS Note that tries to fit stablecoins into M1 and M2. Sounds like a seal of approval, right? Look closer. The authors admit they can't solve double counting. The underlying assets are already in the money supply. Adding stablecoins on top is like counting the same dollar twice. This isn't a policy change. It's a confession of a structural problem. /thread For context, H.6 is the Fed's primary money supply report. It's the second most downloaded dataset on FRED. M1 currently sits at $19.9 trillion, M2 at $23.2 trillion. Stablecoins barely register in scale. But the methodology matters because it signals how the Fed thinks about programmable money. The GENIUS Act bans paying interest on stablecoins. That forces them closer to transaction deposits, which belong in M1. The Fed's functional classification aligns with that logic. The core issue is the double counting paradox. Stablecoins are backed by bank deposits, Treasuries, and government money market funds. Those assets are already inside M1 and M2. If you add the stablecoin market cap on top, you inflate the money supply artificially. The Note explicitly calls this out as a technical challenge they haven't solved. They also admit they lack a separate track for tokenized deposits, which complicates the de-duplication task. Based on my experience reverse-engineering Lido's stETH rebalancing mechanism and finding a reentrancy vulnerability in their oracle feed, I know that when a protocol admits a data gap, they usually plan to fill it. The Fed saying 'we can't track tokenized deposits separately' is a hint that they will build that tracking in the future. Expect a new line item in H.6 called 'tokenized deposits' within 18-24 months. The contrarian angle is that this Note is not a policy commitment. It's a FEDS Note, not a policy directive. The authors are staff economists, not FOMC members. But institutional signals work differently. The Fed staff wouldn't publish this unless senior leadership was aligned. Combined with the GENIUS Act timeline (effective Jan 2027) and OCC's deadline (Nov 2026), you have a coordinated three-pronged push to bring stablecoins into the regulatory tent. The real battle is between stablecoins and tokenized deposits for the 'chain-based money' slot. Banks are already building tokenized deposits as a defensive move. Code is law, but math is the judge. The double counting problem is mathematical, not legal. No amount of regulation can make two overlapping measures additive without distortion. The Fed's framework is an attempt to create a single yardstick for all digital money. But if the underlying assets are already counted, the stablecoin adds zero net new monetary mass. The only real effect is a shift in circulation medium — from insured bank deposits to uninsured programmatic tokens. That shift carries financial stability risks, which the NY Fed has already started studying. Takeaway: This is a structural signal, not a price catalyst. Watch for three confirmations: 1) H.6 revision to include a 'tokenized deposits' subcategory, 2) OCC finalizing rules by Nov 2026, 3) GENIUS Act effective Jan 2027. If those three fire, the stablecoin regulatory stack is complete. The smart money positions in settlement infrastructure and Treasury-backed stablecoin issuers. Don't chase the narrative. Watch the data.