Earlier this month, the Federal Reserve published a thought-provoking paper exploring the impact on monetary policy of a central bank digital currency (CBDC), stablecoins and narrow banks.
The latter are banks that compete directly with commercial banks for deposits but don’t provide any lending. Hence, they aren’t subject to the same run risk as conventional banks.
On the face of it, all three seem highly disruptive to the current system. However, the paper opens with a reminder that the Federal Reserve has fundamentally changed how it conducts monetary policy in the recent past.
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