Gianluca Benigno on Central Bank Balance Sheets, Stablecoins, and Nonlinear Inflation

Swiss National Bank as a case study in balance-sheet traps. Benigno's core point is that the SNB's balance sheet is structurally unlike the Fed's, ECB's, or Bank of England's because most of its assets — 759 billion of 894 billion Swiss francs as of April — are foreign currency investments (euros, dollars, including US equities), while its liabilities ("sight deposits") are entirely franc-denominated. This currency mismatch exists because the franc is a haven currency that appreciates in stress episodes, which is deflationary for Switzerland via import prices. The SNB responds by intervening — buying foreign assets and creating francs — which mechanically expands both sides of the balance sheet and deepens the mismatch. Benigno calls this a "fiscal scale trap": bigger gross positions mean bigger valuation swings from currency moves, which flow through to profit-sharing transfers to the Confederation and cantons (currently rule-based, roughly 1 billion per 5 billion of profit, capped at 6 billion/year; zero in 2022-2023, 4 billion last year). He draws a structural parallel to the US, where QE creates a different kind of trap on the liability side — expanding reserves that regulatory constraints make hard to shrink — versus Switzerland's asset-side trap from currency mismatch.

A policy proposal now under discussion in Switzerland would replace the profit-contingent transfer rule with a fixed 0.5% of balance-sheet size paid annually regardless of profits, smoothing fiscal transfers to cantons but creating (in Benigno's telling, a manageable) incentive tied to balance-sheet size rather than profitability. He does not think this compromises SNB independence; the central bank's FX intervention remains conditioned on its price-stability mandate. Historically the SNB has run losses only rarely — notably in the post-COVID tightening episode, when it faced a "double whammy": raising rates to fight inflation while also selling foreign currency to appreciate the franc and curb imported inflation, both channels working against balance-sheet profitability simultaneously. Benigno characterizes Switzerland's overall inflation management as the most successful among advanced economies he tracks in the post-COVID period, attributing it partly to the SNB's willingness to treat FX intervention as a genuine second policy tool alongside interest rates — using rates for domestic inflation (affecting the liability side) and FX intervention for imported inflation (affecting the asset side).

Stablecoins: redistribution, not creation — with a T-bill wrinkle. Benigno's working paper, "Stablecoin 101: A T-Account Sectoral Analysis Across Regulatory Regimes" (with a co-author), models how stablecoin issuance flows through balance sheets under US (Genius Act), UK, and EU regulatory regimes, which differ in what backs the coins (US: short-term T-bills; UK: allows issuers to hold central bank reserves; EU: allows deposits as backing). His central finding: stablecoin creation does not expand aggregate money supply or public debt — it redistributes seigniorage. Under the Genius Act specifically, stablecoin issuers hold unremunerated tokens as liabilities backed by remunerated T-bills as assets, capturing a spread that previously accrued to banks. The bigger structural effect is a potential shift from retail bank deposits to wholesale deposits at custodial/broker-dealer banks, which face different regulatory treatment and could increase reserve demand at the margin — a second-order effect, not a first-order one.

On the scale question — some forecasts put stablecoin market size at $3-4 trillion within a decade, up from roughly $300 billion now — Benigno says that if most of that growth is T-bill-backed, it is genuine new demand for T-bills, and the effect on yields depends entirely on whether the Treasury's debt management office accommodates it with more issuance. If T-bill supply doesn't adjust, yield-insensitive stablecoin demand compresses short-term rates — what he and his co-author call "stablecoin compression," the subject of a follow-up paper. He notes this could theoretically create an incentive for Treasury to skew issuance toward short maturities if compression becomes substantial, an outcome he flags as a coming interaction between stablecoin regulation and debt-management policy, alongside pending "skinny Fed master account" decisions.

Nonlinear inflation: large global shocks that don't behave like textbook supply shocks. Drawing on work with former New York Fed colleagues and a University of Lausanne student, using the Global Supply Chain Pressure Index, Benigno argues large global disruptions (COVID-era supply chains, potentially the Strait of Hormuz closure) propagate differently from ordinary shocks: they generate outsized persistence in core inflation via input-output network propagation and, depending on labor-market conditions, wage-adjustment feedback. His policy conclusion under host pushback: because these particular shocks are hitting "essential goods" — food and energy that households cannot easily cut — he is skeptical that raising rates is the right response, since it does not address the underlying propagation and imposes additional cost on populations most exposed to inelastic consumption. He stops short of ruling out hikes outright but says the standard "look through supply shocks" framework needs rethinking when shocks are large, structurally persistent, and concentrated in non-discretionary spending.