A Framework for Understanding the Vulnerabilities of New Money-Like Products

Kenechukwu Anadu (), Patrick E. McCabe, Jp Perez-Sangimino and Nathan Swem
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Patrick E. McCabe: https://www.federalreserve.gov/econres/patrick-e-mccabe.htm
Nathan Swem: https://www.federalreserve.gov/econres/nathan-swem.htm

No 2026-002, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: New money-like products, such as tokenized money market funds (MMFs), money market exchange-traded funds (MMETFs), and stablecoins, could be transformative for finance. These products may offer significant benefits, but like other money-like assets, they also have certain vulnerabilities. We introduce a framework to analyze the vulnerabilities of new products by comparing their features to those that contribute to vulnerabilities in MMFs. Specifically, we examine the extent to which each product engages in liquidity transformation, is subject to threshold effects, serves as a money-like asset, poses contagion risks, and has reactive investors. Our framework is useful for assessing the potential effects of novel cash-like products on the overall resilience of the financial system and how such an assessment may change as these products’ uses evolve.

Keywords: Liquidity risk; Systemic risk; Shadow banking; Money market mutual funds; Financial stability (search for similar items in EconPapers)
JEL-codes: E50 G10 G23 (search for similar items in EconPapers)
Pages: 41 p.
Date: 2026-01-06
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Working Paper: A Framework for Understanding the Vulnerabilities of New Money-Like Products (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:102372

DOI: 10.17016/FEDS.2026.002

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