Stablecoin-on-Creditor Violence (Cleveland Fed)
The U.S. Federal Reserve Bank of Cleveland published a paper by Jeffery Zhang and Peter Zimmerman arguing the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act of 2025 rewrites priority and estate-property rules for failed stablecoin issuers. By removing required reserves from the bankruptcy estate and granting holders a shortfall-capped superpriority, the Act lets distressed issuers mint fully backed stablecoins to selectively repay favored creditors, structurally subordinate existing debt, and strip the estate of liquid assets necessary for resolution (“stablecoin-on-creditor violence”). If the issuer is a bank subsidiary, this shifts failure costs onto the deposit insurer and taxpayers. Because federal statutory entitlements shield this mechanism, traditional equitable remedies fail, prompting the authors to recommend countermeasures—including capital requirements, transfer restrictions, and lockups—to mitigate systemic risk. [Cleveland Fed]
Three Myths About Payment Innovation (Kansas City Fed)
[August 29, 2026] Harvard Business School’s Wenxin Du presented a paper at the 2026 U.S. Federal Reserve Bank of Kansas City Jackson Hole Economic Policy Symposium that challenges prevailing payment innovation narratives by prioritizing economic architecture over blockchain rails. First, Du questions the viability of 24/7 atomic gross settlement in wholesale markets, noting it sacrifices critical liquidity-saving benefits of multilateral netting. Second, she argues retail cross-border frictions stem from misaligned banking incentives rather than legacy technology. Finally, she remains highly skeptical that stablecoins resolve inefficiencies, highlighting prohibitive fiat conversion costs and thin foreign exchange liquidity within the “stablecoin sandwich”. Consequently, central banks should prioritize system interoperability and institutional trust over adopting novel distributed ledgers. [Kansas City Fed]
BTW if you want to see a complete database of my DFC-related posts going back years, including many that didn’t make the Daily Digest cut, click here.
FYI I produce a monthly digest of digital fiat currency (DFC) developments exclusively for the official sector (e.g., central banks, ministries of finance and international financial institution (e.g., the BIS, IMF, OECD, World Bank)) plus academics and firms that are active in the DFC space (commercial banks, technology providers, consultants, etc.). (DFCs include central bank digital currency (CBDC), stablecoins and tokenized deposits.) It goes out via email on the first business day of every month, and if you’re interested in being on the mailing list, please email me at john@kiffmeister.com.
