The most important change in American monetary policy may not be happening at Federal Reserve meetings. It may be happening in the systems through which money moves after those meetings end. A bank transfer that once took hours or days can now settle in seconds. A dollar-backed stablecoin can move across a blockchain at any hour. A tokenized bank deposit can potentially travel through programmable financial infrastructure without becoming a different legal form of money. These developments raise a question that extends well beyond cryptocurrency: could changes in payment technology alter how quickly Federal Reserve interest-rate decisions affect consumers, small businesses and the banks that finance them?

That question was unusually prominent at the Federal Reserve Bank of Kansas City's Jackson Hole Economic Policy Symposium, held August 27-29, 2026, under the theme Financial Innovation: Implications for Payments and Policy. The gathering examined how new financial technologies are changing payments, banking and the international monetary system. The official symposium programme included research on tokenized finance, international monetary arrangements, the future of banking and the implications of innovation for central banking.

The underlying issue is not simply whether money can move faster. Monetary policy operates through a chain of decisions: market interest rates change, banks reassess funding costs, lenders adjust loan pricing, businesses reconsider investment and households change spending. Technology can compress some links in that chain, but it can also redirect money away from banks, create new funding pressures or make financial conditions more sensitive to sudden shifts in confidence. The emerging evidence suggests that payment innovation could change the transmission of monetary policy, although it does not yet establish that the overall process is consistently faster.

The distinction between faster payments and faster monetary policy

When the Federal Open Market Committee changes its policy rate, the announcement can affect financial markets almost immediately. Treasury yields, interest-rate futures and other traded assets respond to new information about the expected path of policy. Retail borrowers experience a different process. Credit-card rates, business credit lines, mortgage offers, savings rates and bank lending standards adjust according to contractual terms, competitive conditions, bank funding structures and the perceived risk of borrowers.

Instant payment infrastructure changes the mechanics of transferring funds, not necessarily the pricing of credit. A business receiving a customer payment in seconds does not automatically receive a cheaper overdraft. A consumer moving money between accounts on a Sunday does not necessarily receive a better deposit rate. The Federal Reserve could make payments instantaneous without changing a bank's willingness to lend, its capital position or the contractual interest rate on an existing loan.

Yet payment technology can matter indirectly. If households and companies can shift balances between financial providers more easily, banks may find it harder to retain inexpensive deposits when market rates rise. If businesses can manage liquidity continuously, they may hold smaller precautionary balances or move surplus cash more actively. If a new instrument becomes a close substitute for a bank deposit, the competitive pressure on deposit rates and the cost of alternative bank funding could change.

This is the quieter monetary-transmission story: innovation may matter less because a payment settles faster than because it changes where money is held, how banks fund themselves and how quickly financial institutions must react to customers.

FedNow's growth: meaningful infrastructure, incomplete evidence

The Federal Reserve's FedNow Service provides a useful test of the distinction between operational capability and economic consequence. FedNow enables participating financial institutions to send and receive eligible instant payments around the clock. Unlike conventional batch-based payment arrangements, it is designed to make funds available to recipients quickly, including outside ordinary banking hours.

Federal Reserve Financial Services' published statistics show that FedNow settled approximately 8.41 million payments worth $853.4 billion in 2025. In the second quarter of 2026, the service recorded about 5.00 million settled payments worth $274.7 billion. The first quarter recorded roughly 2.73 million payments worth $271.3 billion. These figures demonstrate substantial activity and a growing role for the service, but quarterly totals can fluctuate, and the dollar value of payments should not be confused with the value of new economic activity.

The figures also need careful interpretation. The reported average payment value was approximately $54,957 in the second quarter of 2026, compared with about $99,414 in the first quarter. Such large averages indicate that FedNow's traffic cannot simply be treated as a representative sample of everyday consumer purchases. Business transfers, liquidity movements and other relatively large transactions can materially influence the totals. Nor does a settled payment necessarily represent a new purchase: it may be a transfer between accounts or a movement of existing funds.

The Federal Reserve's FedNow volume and value statistics therefore establish that instant settlement is gaining operational traction, not that monetary-policy transmission has accelerated by a measurable amount.

The distinction matters especially for small businesses. A retailer receiving an eligible instant payment may be able to pay a supplier, meet payroll or reduce a short-term borrowing requirement sooner. That could lower the need for precautionary cash buffers and reduce the duration of some liquidity shortfalls. But these gains depend on both counterparties having suitable access, the payment being routed through compatible infrastructure and the business being able to use the funds immediately. They also depend on the terms of its credit facilities. Faster receipt of revenue may improve cash management without changing the interest rate charged on outstanding debt.

Another complication is scale. The Federal Reserve's initial findings from its 2025 triennial payments study, released in July 2026, estimated that consumers and businesses made 236.6 billion noncash payments in 2024. Cards accounted for more than three-quarters of noncash payments by number, while automated clearing house payments accounted for almost three-quarters of their value. FedNow is expanding within a much larger ecosystem. Its growth should be measured against the payments it replaces or improves, rather than interpreted in isolation.

Stablecoins introduce a different transmission channel

Stablecoins differ fundamentally from instant payments made through conventional bank accounts. A payment rail is infrastructure; a stablecoin is an asset and a claim whose value is intended to remain close to a reference currency, commonly the US dollar. A stablecoin can circulate on a blockchain, but its economic characteristics depend on its issuer, reserve assets, redemption arrangements and legal protections.

The US regulatory framework is also moving from legislation towards implementation. The GENIUS Act, enacted on July 18, 2025, established a federal framework for payment stablecoins. In 2026, the Treasury Department and the Office of the Comptroller of the Currency advanced proposed rules covering parts of the new regime. Treasury's August 17, 2026, proposal addressed the issuance, offering and sale of payment stablecoins. The OCC had previously issued a proposed rule on February 25, 2026, covering permitted payment stablecoin issuers and certain custody activities within its jurisdiction.

These are important milestones, but proposed rules are not the same as a fully implemented regime. Treasury's August announcement described January 18, 2027, as the expected effective date of the GENIUS Act's general licensing requirement. The legal and operational landscape on October 9, 2026, therefore remains transitional. Market participants still face implementation questions about supervision, redemption, compliance and the practical scope of the rules.

The potential monetary-policy consequences begin with stablecoin reserves. Under the GENIUS Act framework, permitted payment stablecoins must be backed by specified liquid assets, including short-term US Treasury securities and eligible deposits. The law prohibits issuers from directly paying interest to stablecoin holders, although the possibility of indirect rewards is not ruled out. Consequently, stablecoins are not simply interest-bearing bank deposits with a different interface.

Suppose a household moves $5,000 from a bank deposit into a stablecoin. The issuer receives funds and holds permitted reserve assets. If the reserve is a bank deposit, some money remains within the banking system, albeit potentially at a different institution. If the issuer buys Treasury bills, the household's transaction balance has been replaced by a claim on a stablecoin issuer whose assets include government securities. The consequences for aggregate bank funding depend on how the transaction is financed, where the funds move and how the issuer manages its reserves.

If stablecoins become attractive substitutes for transaction deposits, banks could have to offer more competitive deposit rates to retain customers. Alternatively, they could rely more heavily on wholesale funding or other liabilities, which may be more sensitive to market conditions. Either development could change how a Fed rate decision affects banks' marginal funding costs and their pricing of new loans.

This is not merely a speculative mechanism. In a March 30, 2026, Federal Reserve FEDS Notes article, Payment Stablecoins and Cross Border Payments: Benefits and Implications for Monetary Policy Implementation, authors Kyungmin Kim, Romina Ruprecht and Mary-Frances Styczynski examined stablecoin design, cross-border payments and implications for monetary-policy implementation. Their analysis highlights the importance of reserve arrangements and the relationship between private payment instruments and central bank money. The broader implication is that stablecoin adoption can affect the plumbing through which monetary policy operates even if the Federal Reserve never changes its own settlement technology.

What the BIS research says about transmission

The most direct challenge to the claim that stablecoins necessarily weaken central-bank influence comes from recent research on banking intermediation. The Bank for International Settlements' Working Paper 1363, The macroeconomics of stablecoins, published on June 23, 2026, by Boris Hofmann, Matthias Kaldorf and Matthias Rottner, develops a quantitative model connecting stablecoins, banks, government borrowing and monetary policy.

The authors identify two competing channels. First, household demand for stablecoins can induce banks to raise deposit rates to retain funding. Higher funding costs can then constrain lending, creating a bank-lending channel through which monetary policy may become more powerful. Second, stablecoin issuers' purchases of Treasury bills can lower government borrowing costs and create fiscal space for additional spending or tax reductions. Those fiscal effects can support economic activity, potentially offsetting some of the contractionary effects of tighter monetary conditions.

The paper's calibrated US model finds that widespread stablecoin adoption modestly reduces long-run output in its baseline scenario because the bank-lending channel outweighs the fiscal-space channel. But the authors also find that the fiscal channel operates more quickly during the transition, producing positive short-term output effects in their model. They conclude that stablecoins can strengthen monetary-policy transmission through bank lending even as the overall economic effects depend on reserve rules, public debt and foreign demand.

This is a significant qualification to the popular narrative that blockchain-based money automatically makes central banks less relevant. The model does not predict a universal outcome, and its findings are conditional on assumptions about adoption and financial structure. Nevertheless, it shows why the effect of a new payment instrument cannot be inferred from settlement speed alone.

Other BIS work adds a cross-border dimension. Working Paper 1370, Dollarisation and monetary control: what lessons for the rise of stablecoins?, published on July 21, 2026, examines the relationship between stablecoin inflows and conventional foreign-currency deposits. Its focus is particularly relevant to economies where residents use dollar-linked instruments as stores of value. Wider stablecoin use could make access to dollar liquidity easier, potentially tying domestic financial conditions more closely to US monetary policy while complicating the ability of local authorities to manage currency substitution.

That international channel should not be confused with a demonstrated acceleration in the pass-through of US policy rates to American households. A stablecoin used by a business abroad may influence demand for Treasury bills or the currency composition of savings without changing the speed at which a US mortgage rate adjusts. The mechanisms operate at different levels and require different evidence.

Tokenized deposits: the less dramatic alternative

Tokenized deposits may ultimately have a more direct relationship with conventional banking than independently issued stablecoins. They are bank deposits represented and transferred through token-based infrastructure, rather than separate claims on a nonbank issuer. If designed and operated as genuine deposits, they remain liabilities of the issuing bank, backed by its balance sheet and subject to applicable banking rules and deposit-insurance arrangements.

A Federal Reserve note published on September 4, 2026, titled New Forms of Money and the U.S. Monetary Aggregates, describes tokenized deposits as enabling bank-mediated payments around the clock, including interbank settlement, corporate treasury operations, cross-border transfers and collateral management. The note emphasizes that these instruments remain legally bank deposits and can be converted into cash without requiring the holder to sell an underlying security.

For a small business, the practical attraction is straightforward. A company might use tokenized deposits to move funds between participating banks, pay a supplier under pre-agreed conditions or coordinate cash and collateral movements outside conventional business hours. Programmable transfers could reduce reconciliation delays and improve the timing of working-capital decisions. In principle, a business could also coordinate payments with incoming receipts more precisely, reducing the amount of idle cash it needs to maintain.

But there is a crucial difference between a technical demonstration and a broadly interoperable banking system. Tokenized deposits are not yet supported by a universal network connecting all banks, jurisdictions and payment providers. Private platforms can be fragmented, and the institutions involved must agree on identity, compliance, settlement, legal finality and operational standards. A payment that is instantaneous inside one network may still encounter delays when it crosses into another.

Tokenization also does not abolish the traditional banking model. Banks must still manage credit risk, liquidity, capital and the maturity mismatch between deposits and loans. If tokenized deposits make it easier for customers to shift funds between banks, they could intensify competition for deposits. If they instead make existing bank money more useful without materially changing customers' funding choices, their principal effect may be greater efficiency rather than a fundamental change in monetary transmission.

The evidence against the instant-transmission narrative

Research on conventional bank funding offers an important baseline. In a September 2025 Finance and Economics Discussion Series paper, Monetary Policy and Bank Funding Costs: Patterns and Predictability in the Transmission of the Policy Rate to U.S. Banks' Funding Costs, Daniel A. Dias and Sophia C. Scott found that bank funding betas vary predictably with the length, magnitude and direction of monetary-policy cycles. Nondeposit liabilities generally adjust more than deposits, while the aggregate relationship between policy rates and bank funding costs has remained remarkably stable over three decades.

That finding matters because it suggests the existing transmission mechanism is neither instantaneous nor technologically static, yet it retains measurable regularities. A new payment system would need to alter banks' actual funding behaviour, not merely make transfers possible at weekends, before researchers could conclude that the policy transmission mechanism had materially changed.

There is also a measurement problem. Researchers would need to distinguish changes caused by payment technology from changes caused by interest-rate expectations, competition, regulation, credit demand or broader financial conditions. If a bank raises deposit rates after a policy tightening, the change could reflect customers moving money through new rails, but it could also reflect ordinary competition from money-market funds. If a small business reduces its cash holdings after adopting instant payments, that does not prove its borrowing rate has become more responsive to the Fed.

The strongest claims made by technology advocates often conflate three separate propositions: transactions can settle faster; funds can be reallocated more easily; and interest rates or spending respond more quickly to monetary-policy changes. The first proposition is an operational fact for eligible instant payments. The second is plausible but depends on access, fees, liquidity and customer behaviour. The third remains an empirical question whose answer may differ by instrument, bank, borrower and economic cycle.

What regulators are really trying to preserve

Regulators face a trade-off between enabling new payment models and preserving confidence in money. The Treasury's stablecoin implementation work and the OCC's proposed rules seek to establish conditions under which payment stablecoins can operate within a supervised framework. Reserve quality, redemption, custody, compliance and insolvency treatment are not peripheral details: they determine whether a token can function reliably as money during periods of stress.

The difference between stablecoins and tokenized deposits becomes especially important during a loss of confidence. A tokenized bank deposit remains a claim on a bank, subject to the legal protections and limitations applicable to that deposit. A stablecoin holder relies on the issuer's contractual and statutory redemption framework, reserve arrangements and operational capacity. A nominal one-dollar price does not, by itself, guarantee immediate redemption at par under every market condition.

Nor does a blockchain guarantee uninterrupted liquidity. Network congestion, cyber incidents, exchange disruptions, compliance controls or uncertainty about the issuer can interfere with a transaction. A system that operates continuously may transmit a rush for liquidity more quickly than a system that settles only during defined windows. Faster settlement can improve resilience in ordinary conditions while amplifying the speed at which stress spreads.

The Federal Reserve's own approach to access also reflects these tensions. In May 2026, the Board requested public comment on a proposed payment account for eligible institutions seeking limited access to Federal Reserve payment services. The proposal was designed to support certain payment and settlement needs while excluding features such as intraday credit and discount-window access. This illustrates a broader policy issue: access to faster settlement infrastructure does not automatically confer the full range of privileges and backstops available to conventional banks.

What would prove that transmission has changed?

To establish whether these innovations are changing monetary transmission, researchers will need more than aggregate transaction volumes or stablecoin market capitalization. One useful test would compare banks with differing exposure to stablecoin-related deposit outflows before and after policy-rate changes. If more exposed banks consistently adjust deposit pricing, loan rates or lending volumes more rapidly, after controlling for their balance sheets and customer mix, that would provide stronger evidence of a changed transmission channel.

A second test would examine businesses that adopt instant payments or tokenized deposits. Researchers could measure whether those businesses reduce overdraft use, maintain smaller cash buffers, negotiate different credit terms or alter investment following monetary-policy surprises. A credible analysis would need comparison groups and controls for business size, sector, digital maturity and access to credit. Faster payment receipt alone is not enough to establish causation.

A third test concerns the composition of stablecoin reserves. The monetary consequences of a stablecoin funded by domestic bank deposits may differ from those of one attracting money from overseas investors or displacing holdings of other liquid assets. Changes in Treasury-bill demand, bank funding spreads, deposit rates and credit availability would help reveal which channel dominates in practice.

Finally, the effects should be assessed separately across monetary-policy tightening and easing cycles. Banks do not necessarily pass through rate increases and reductions symmetrically, and households differ in their ability to move funds. A payment innovation might speed the response of financially sophisticated businesses while leaving households with fixed-rate mortgages, limited savings or expensive credit largely unaffected.

The 2026 Jackson Hole discussion therefore points to a more nuanced future than the promise of instant money suggests. FedNow is expanding the availability of real-time settlement. Stablecoins could alter competition for bank deposits and demand for short-term government debt. Tokenized deposits may make existing bank money more programmable and easier to move. Each development can change incentives, funding patterns and liquidity management, but none guarantees that the Fed's decisions will reach every borrower sooner.

The most consequential change may be structural rather than immediate. If money becomes easier to move, banks may have to compete harder for stable funding. If that raises their sensitivity to market rates, monetary policy could become more powerful in some circumstances. If stablecoin adoption redirects savings into different assets or creates new channels for cross-border dollar use, policy effects may become less predictable in others. And if instant settlement enables liquidity to flee during a crisis, speed could become a source of fragility as well as efficiency.

For consumers and small businesses, the practical outcome will depend on whether faster infrastructure translates into better access, lower costs and more competitive financial services. For central banks, the task is to distinguish the speed of a payment from the speed of an economic adjustment. The payment revolution is real; the claim that it has already revolutionized monetary transmission remains unproven.