Fiat-Backed Stablecoins and Narrow Banking

Oz Shy

Policy Hub, 2026, vol. 2026, issue 2, 12

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.

Keywords: fiat-backed stablecoins; narrow banking; full-reserve banks; limited-purpose banks; GENIUS Act (search for similar items in EconPapers)
JEL-codes: G21 G23 G28 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:fip:a00068:102974

DOI: 10.29338/ph2026-02

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