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

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

Jennifer Schonberger · Senior Reporter

Thu, August 27, 2026 at 7:08 PM GMT+3 2 min read

As central bankers gather for the 49th annual economic symposium in Jackson Hole, Wyo., starting Thursday evening, Kansas City Fed president Jeff Schmid warned that the rise of innovation in payments from stablecoins to blockchain and instantaneous payments could be disruptive.

"I think we're going to find that not only is this, from an innovation standpoint, very transitional, it's going to be very disruptive too," Schmid said in an interview with Yahoo Finance.

The theme of this year's gathering focuses on financial innovation in payments and the implications for monetary policy.

"I think we need to prepare," Schmid said. "We're going to be talking in the next decade more about sources of liquidity and duration, maybe more than we talked about capital, because at the end of the day, that $5 [trillion] or $10 trillion that we move a day is going to over time become instantaneous, and that's going to be a change in the system at large."

If payments become instantaneous and settle instantaneously, Schmid wonders, how does that impact liquidity, and what's the nature of assets backing the instruments?

One of those innovations — stablecoins — is mandated by a newly passed law to back all outstanding payment stablecoins on a strict 1-to-1 ratio with highly liquid, safe assets. Those assets include short-term US Treasurys, physical cash, or deposits.

Since stablecoins are mandated to be backed by short-term liquid assets, including T-bills, as the market grows, that could increase demand for stablecoin issuers holding Treasurys.

Read more: How stablecoins work

Schmid said that could have implications for financial stability. That's where the Fed comes in.

"What do we have to do relative to supervisory regulation just around how liquid a bank is?" said Schmid. "We've got architecture like that now, but you think about things like the Silicon Valley Bank experience and how fast that went from a capital impairment to a liquidity crisis, and that's the challenge instant payments are going to create.

"So from a financial stability standpoint, we need to be aware of these things."

Silicon Valley Bank failed in March 2023 after failing to hedge interest rate risk. It was deeply intertwined with the cryptocurrency sector and triggered a severe stablecoin run.

"So that's why I think not only is it financial innovation, it's an awareness that, hey, be prepared, because we've unleashed the instant payment platform and it's going to mature over the next decade."

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance, she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

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