Federal Reserve researchers have released a new paper titled “The Fragility of Perfectly Safe Digital Money,” highlighting how digital currencies can become unstable. The study argues that unlike traditional money, digital currency does not rely on a single trusted institution; instead it uses decentralized verification that incurs congestion‑sensitive gas fees. This dual dynamic—network externalities that raise value as more users adopt the currency, and rising transaction costs—creates strategic complementarities in redemption decisions. The authors find that these forces can trigger runs on the currency even when it is backed by safe reserves. The research aims to stimulate discussion among economists and policymakers about potential stability risks posed by emerging digital assets.
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