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Fiat-Backed Stablecoins and Narrow Banking

Author

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  • Oz Shy

Abstract

Devastated by the misery of millions of people during the Great Depression caused by the collapse of the entire US financial system, a group of economists at the University of Chicago sought to reform the banking sector. The "Chicago plan" suggested a replacement of "fractional-reserve banks" with "full-reserve banks" (also called "narrow banks" and "limited-purpose banks"). Most economists dismiss this idea. However, the rising popularity of stablecoins and the 2025 GENIUS Act in the US introduce this form of banking to the general public. The goal of this note is to analyze the similarities and differences between the narrow banking proposal and the fast-growing fiat-backed stablecoins.

Suggested Citation

  • Oz Shy, 2026. "Fiat-Backed Stablecoins and Narrow Banking," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2026(2), pages 1-12, March.
    • Handle: RePEc:fip:a00068:102974
    DOI: 10.29338/ph2026-02
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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