Authors: Pablo Azar, Maryam Farboodi, and Nish D. Sinha
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Staff Reports
Stablecoins Meet the Mundell–Fleming Trilemma
Number 1202
August 2026
August 2026
JEL classification: F32, F33, F38, E58, G28
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.
Author Disclosure Statement(s)
Pablo D. Azar
I want to disclose that I own 1. Profits interests in Algorand Inc. and affiliated entities valued at more than $10,000 2. Less than $2000 in a Binance account.
Maryam Farboodi
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Nish Sinha
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
I want to disclose that I own 1. Profits interests in Algorand Inc. and affiliated entities valued at more than $10,000 2. Less than $2000 in a Binance account.
Maryam Farboodi
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Nish Sinha
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports.
Suggested Citation:
Azar, Pablo D., Maryam Farboodi, and Nish D. Sinha. 2026. “Stablecoins Meet the Mundell–Fleming Trilemma.” Federal Reserve Bank of New York Staff Reports, no. 1202, August. https://doi.org/10.59576/sr.1202
Azar, Pablo D., Maryam Farboodi, and Nish D. Sinha. 2026. “Stablecoins Meet the Mundell–Fleming Trilemma.” Federal Reserve Bank of New York Staff Reports, no. 1202, August. https://doi.org/10.59576/sr.1202
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