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Board of Governors of the Federal Reserve System
06/02/2026 | Press release | Distributed by Public on 06/02/2026 12:48
The Fragility of Perfectly Safe Digital Money
June 2026
The Fragility of Perfectly Safe Digital Money
Elizabeth C. Klee, Arazi Lubis, Chase P. Ross, Sharon Y. Ross, and Alexandros P. Vardoulakis
Abstract:
Digital money differs from previous forms of money in an important way: it unbundles trust. Instead of relying on a trustworthy institution to settle payments, it relies on decentralized verification, whose cost is priced separately through congestion-sensitive gas fees. This arrangement creates a novel fragility from the interaction of two opposing forces: network externalities, which make digital money more valuable as adoption rises, and congestion fees, which make it more costly to use. We show that these forces generate strategic complementarities in redemption decisions and can create runs even when digital money is backed by perfectly safe reserves.
Keywords: Stablecoins, Digital Assets, Payments, Runs, Financial Stability, Global Games
DOI: https://doi.org/10.17016/FEDS.2026.037
PDF: Full Paper
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