Kansas City Fed's Schmid warns payment innovation will be 'very disruptive'

Kansas City Federal Reserve President Jeff Schmid cautioned that advancements in payment technology, from stablecoins to blockchain systems, could disrupt the financial system. Speaking at the Jackson Hole economic symposium, Schmid emphasized that these innovations are not only transitional but also disruptive. He stressed the importance of preparing for the future as $5 to $10 trillion in transactions move instantly each day.

The rise of stablecoins, backed by short-term U.S. Treasurys, physical cash, or deposits, could increase the demand for Treasurys and raise questions about financial stability. Schmid highlighted the need for the Federal Reserve to address supervisory regulation related to bank liquidity, drawing a parallel to the Silicon Valley Bank crisis.

The rapid decline of Silicon Valley Bank from capital impairment to liquidity crisis underscores the challenges that instant payments pose, signaling that the financial landscape will continue to evolve over the next decade.