New Forms of Money and the U.S. Monetary Aggregates

September 04, 2026

New Forms of Money and the U.S. Monetary Aggregates¹

Kristen Payne and Mary-Frances Styczynski

Overview

The money supply is defined as a group of safe assets with stable values that households and businesses can use to make payments or to hold as short-term investments. In the U.S., the Federal Reserve measures the money supply using officially defined monetary aggregates, which classify assets according to their liquidity and function-a store of value versus a medium of exchange. The Federal Reserve calculates and publishes three monetary aggregates and their components monthly on its H.6 statistical release, Money Stock Measures: the monetary base, M1 (the most liquid forms of money used for transactions), and M2 (which includes M1 plus less liquid savings-type assets). Many users rely on these aggregates as part of their analysis of developments in the U.S. economy-in fact, the H.6 statistical release is the second most downloaded release from the Federal Reserve Bank of St. Louis' FRED database. This underscores the importance of evaluating the aggregates to ensure they reflect all the assets available in today's economy.

The Federal Reserve has a history of updating the definitions of the U.S. monetary aggregates to reflect financial market innovations and regulatory changes.² This note explores how the aggregates could be updated to reflect the emergence of new financial assets-such as tokenized deposits, tokenized money funds, and payment stablecoins-that have money-like features.³ The authors outline an analytical approach that could be used to incorporate these new financial assets into the aggregates. The note is organized into three sections: (1) background on how the Federal Reserve defines and constructs U.S. monetary aggregates, (2) description of this analytical approach, and (3) its application to three digital assets.

This note is independent research, reflecting only the views of the authors, and is not part of any policy deliberation on how to define the U.S. monetary aggregates.

Background on the U.S. Monetary Aggregates

The three U.S. monetary aggregates-the monetary base, M1, and M2-each serve a distinct analytical purpose.⁴ The monetary base measures money issued by the public sector: currency in circulation and reserve balances held by depository institutions (DIs, used interchangeably with "banks" in this note) at Reserve Banks. M1 and M2 are progressively more inclusive measures of money that measure currency in circulation plus private-sector-issued money. M1 is included within M2. M1 is the narrowest and most liquid measure of the money supply. M1 consists of highly liquid forms of money, such as currency and demand deposits, that are readily accessible for spending. M1 components are payable on demand and consist either of cash or balances immediately convertible into cash. They are also transferable to third parties. M2 is a broader measure of the money supply. M2 is comprised of M1 plus less liquid assets that are often used as short-term savings vehicles: small time deposits (those issued in amounts less than $100,000) and retail money market funds (MMFs). Non-M1 components of M2 (non-M1 M2) are highly liquid but often require being transferred to a demand deposit to be used. For example, retail MMFs are not used to make purchases by households and businesses. They can be redeemed (i.e., MMF balances can be transferred into a demand deposit), but the redemption process typically takes 1 to 2 business days.

Analytical Approach

As noted earlier, money is defined as a group of safe assets that households and businesses can use to make payments or hold as short-term investments. Tokenized deposits, tokenized money funds, and payment stablecoins have features that meet the definition of money. To evaluate whether and how to incorporate a financial asset into the aggregates, the analytical approach outlined in this note considers two steps: assessing the asset's functional classification and addressing four practical measurement considerations.⁵

Part 1: Functional Classification
Money can be classified as a medium of exchange or store of value. Assets primarily serving as a medium of exchange-highly liquid, immediately available for transactions, used for payments, and low yielding-are typically placed in M1. Assets primarily serving as a store of value-liquid but requiring redemption, used for short-term savings purposes, and bearing interest closer to market rates-are usually included in non-M1 M2.

Part 2: Practical Measurement Considerations
There are four practical measurement considerations.

Data availability: Incorporating a particular asset into the monetary aggregates requires reliable, timely data on the amount in existence.

Reporting infrastructure: There must be a systematic, uniform way of collecting the data.

Double-counting risk: Potential double-counting must be assessed and minimized. Double-counting arises when an asset included in one part of the aggregate is already captured in another part of the aggregate. For example, net assets of retail MMFs-which are included in non-M1 M2-are made up of investments in bank demand deposits, which are already included in the demand deposit component of M1. The amount of net assets held with banks is likely to be small, as demand deposits are low yielding. Thus, the overall risk of double-counting is relatively small.

Geographic scope: The assets included in the monetary aggregates could represent payment activity within the United States or around the world. What the aggregates measure depends on how the assets circulate. For example, the money stock component of M1 represents physical cash in circulation around the world. Deposit-related components are defined to reflect holdings at banks in the United States; U.S. dollar deposits at banks outside the United States are excluded.

Overview of New Asset Types and Application of Analytical Approach

The following subsections define each new digital financial asset, apply the analytical approach to evaluate functional uses (Part 1) and address measurement considerations (Part 2), and conclude with a final assessment. Please refer to the Appendix for a high-level summary of how the analytical approach applies to each asset.

Tokenized Deposits
Tokenized deposits are a digital representation of traditional DIs' deposits recorded and transferred on a blockchain.

Features (summarized in Table 1)

Table 1. Features of Tokenized Deposits

Functional Uses

Institutional customers are using tokenized deposits as they would a checking account. For example, these customers are using tokenized deposits for 24/7/365 interbank settlement, corporate treasury operations, cross-border payments, and collateral management in securities transactions. These use cases suggest that tokenized deposits are a medium of exchange, consistent with an M1 classification.

Banks offer other types of deposit products, such as time deposits. Time deposits could be "tokenized"- that is, issued and circulated on a blockchain. Time deposits are a short-term savings vehicle or a store of value. The monetary aggregates track the value of small time deposits (those issued in amounts less than $100,000). If small time deposits were tokenized, then they would be classified as a store of value and captured in non-M1 M2.

Measurement Considerations

Data availability: DIs currently report tokenized deposits on the report forms used to measure the monetary aggregates. There are weekly and quarterly data sources for deposits. Tokenized deposits are not reported separately from traditional deposits.

Reporting infrastructure: Data are collected and stored in a central data repository at the DI level and then are aggregated.

Double-counting risk: There is no risk of double counting. Deposits are backed by physical cash in the vaults of DIs, balances at Federal Reserve Banks, and other less liquid assets that are not included in the monetary aggregates.⁶

Geographic scope: Tokenized deposits may reflect payment activity that happens outside the United States.

Assessment

Depending on the type of deposit, tokenized deposits are included in M1 or non-M1 M2. They are commingled with traditional deposits in the data reported to the Federal Reserve and may circulate more widely than traditional deposits. Separately tracking tokenized deposits from traditional deposits would allow assessment of blockchain-based banking adoption.

Tokenized Money Market Funds
Tokenized money market funds (MMFs) are a digital representation of shares in money market mutual funds on a blockchain.

Features (summarized in Table 2)

Table 2. Features of Tokenized MMFs

Functional Uses

Tokenized MMFs-like traditional MMFs-are a short-term savings vehicle. They have features resembling a store of value in that holders can earn interest at rates close to those offered in the market and customer funds are accessible with a lag. These features are consistent with the definition of non-M1 M2. However, the use cases for tokenized MMFs are expanding to include faster settlement of financial transactions, collateral management, cross-border payments, and on-chain lending and borrowing activities.⁸ If these medium-of-exchange uses become dominant, tokenized money funds could be considered for reclassification to M1.

Measurement Considerations

Data availability: Net assets of tokenized MMFs are sourced from the Investment Company Institute (ICI). ICI provides net assets by fund and distinguishes between retail and institutional funds. ICI does not identify whether a fund has been issued in tokenized form.

Reporting infrastructure: Fund companies report data at the individual fund level to ICI, which stores the information in a central data repository and aggregates by fund type (retail vs. institutional) but does not separately identify tokenized funds.

Double-counting risk: There is a small risk of double counting, as tokenized MMFs' net assets may be backed by bank deposits. However, the asset allocation behavior for tokenized MMFs is the same as traditional funds in that deposits are low-yielding and funds have an incentive to minimize their holdings.

Geographic scope: Tokenized MMFs, in theory, can circulate outside the United States, and thus capture a wider swath of activity than just that in the U.S.

Assessment

Tokenized MMFs are currently included in the retail MMF component of non-M1 M2. They are commingled with traditional money funds in the routine data source. As decentralized finance develops, tokenized money funds may be used for payments and thus share characteristics of the assets included in M1.

Payment Stablecoins
A stablecoin is a digital asset designed to maintain a stable value by being pegged 1:1 to an underlying asset. This analysis focuses on stablecoins that are issued by a permitted payment stablecoin issuer according to the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act). Broadly speaking, a payment stablecoin must be backed by relatively safe assets, such as U.S. Treasury bills and bank deposits. Also, payment stablecoins are prohibited from paying interest directly to stablecoin holders, though indirect compensation may be possible.⁹

Features (summarized in Table 3)

Table 3. Features of Payment Stablecoins

Functional Uses

Few payment stablecoins are currently in operation, making the assessment of their functional use difficult. The closest analogy to a payment stablecoin is Circle's USDC stablecoin, which can inform some high-level conclusions about payment stablecoins.

Payment stablecoins like USDC are used to provide a stable value to crypto traders for moving in and out of cryptocurrency. Users also leverage stablecoins as a short-term investment; though zero-yielding, providers offer compensation through other yield-generating mechanisms.¹³ It is unclear whether payment stablecoins under the GENIUS Act will provide the same benefits to users. If they do, then these types of use cases suggest payment stablecoins may function as a store of value and thus suggest placement in non-M1 M2.

Payment stablecoins could also be used to support everyday payment activity of households and businesses. Transactions on a blockchain settle instantaneously, so payment stablecoins could arguably be more liquid than demand deposits. While other services settle almost instantaneously, the vast majority of payments between banks still take 1-2 days. So in the future, payment stablecoins could function as a medium of exchange, consistent with an M1 classification.

Measurement Considerations

Data availability: To incorporate USD payment stablecoins into the monetary aggregates, reliable, timely data on the amount of stablecoins in circulation are required. Because payment stablecoins are backed 1:1 with reserve assets, the value of their reserve assets could serve as a proxy for circulation. The GENIUS Act requires authorized payment stablecoin issuers to issue monthly reports on their holdings of reserve assets, including U.S. Treasury bills, commercial bank deposits, and balances at a Federal Reserve Bank. This provides a regulatory foundation for the necessary data.

Reporting infrastructure: While the GENIUS Act establishes a foundation for data collection, additional steps would be needed for integration into the monetary aggregates. Specific guidance would be required to ensure stablecoin issuers report circulation data in a standardized format compatible with Federal Reserve monetary aggregates compilation systems. Consideration should also be given to the reporting chain-whether data should flow directly to the Federal Reserve or through a federal regulator (e.g., OCC, Federal Reserve, or state regulators) that would then share aggregated data.

Double-counting risk: Payment stablecoins will be backed by a variety of assets, including holdings of U.S. Treasury securities, deposits at banks, and investments in government money funds. Some of these assets, like deposits at banks and net assets of money funds, are already captured in the monetary aggregates.

The extent of the double-counting needs to be assessed to determine whether adjustments are necessary.

Geographic scope: The GENIUS Act applies only to U.S.-regulated issuers but does not distinguish between domestic and international circulation. Because stablecoins can circulate globally on public blockchains, there may be a need to isolate U.S. circulation from global activity. However, the lack of geographic data in blockchain transactions makes this distinction challenging without additional reporting requirements.

Assessment

Payment stablecoins could be included in either M1 or non-M1 M2 depending on their use cases. If payment stablecoins are predominantly used to support cryptocurrency trading as a store of value, then non-M1 M2 may be the best placement. Payment stablecoins could evolve toward more widespread use in everyday transactions, a development that would be consistent with including them in M1. Payment stablecoins present some unique measurement challenges that will need to be addressed before incorporating them into the aggregates.

Conclusion

The emergence of blockchain-based money-like assets highlights the need for ongoing evaluation of monetary aggregate definitions. As these digital assets gain adoption, accurate measurement becomes increasingly important for economic analysis and policy decision-making. The Federal Reserve should continue monitoring these developments and be prepared to update data collection systems, revise aggregate definitions as the digital asset landscape matures, and collaborate with other federal regulators to standardize data reporting requirements.

References

Azar, Pablo, Francesca Carapella, JP Perez-Sangimino, Nathan Swem, and Alexandros P. Vardoulakis (2025). "The Emergence of Tokenized Investment Funds and Their Use Cases," Liberty Street Economics. New York: Federal Reserve Bank of New York, September 24.

Deloitte (2025). "USDC Examination Report," December 19, https://www.circle.com/transparency.

Ford, Heather, and Mary-Frances Styczynski (2024). "An Update to Measuring the U.S. Monetary Aggregates," FEDS Notes. Washington: Board of Governors of the Federal Reserve System, November 12, 2024.

Federal Reserve Board (2015). "Performance Evaluation of Statistical Release H.6: Money Stock Measures," Washington: Board of Governors of the Federal Reserve System, December.

Federal Reserve Board (2020). "Revisions to the H.6 Statistical Release," Washington: Board of Governors of the Federal Reserve System, December 17.

Office of the Comptroller of the Currency (2026). OCC Bulletin 2026-3, "GENIUS Act Regulations Notice of Proposed Rulemaking," Washington: Office of the Comptroller of the Currency, February 25, 2026.

Tether (2026). "Tether Announces the Launch of USA₮, the Federally Regulated, Dollar-Backed Stablecoin, Made in America," January 27, https://tether.io/news/tether-announces-the-launch-of-usat-the-federally-regulated-dollar-backed-stablecoin-made-in-america/.

Walter, J. (1989). "Monetary Aggregates: A User's Guide," Economic Review. Richmond: Federal Reserve Bank of Richmond, January/February.

Willems, A. (2025). "The Loophole Turning Stablecoins Into a Trillion-Dollar Fight," WIRED, September 3, https://www.wired.com/story/genius-act-loophole-stablecoins-banks/.

Appendix

Table A.1. Analytical Approach Application by Asset Type