Jackson Hole Economic Symposium Explored Innovation in Financial Markets

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In August, the 49th Jackson Hole Economic Policy Symposium brought together academic experts and policymakers from around the world to explore how innovation is changing payments, financial markets, and the conduct of policy. The conversation, reflected in academic papers, panels, and presentations over the course of two days, centered on the costs, benefits, and risks from innovations in artificial intelligence (AI) and payments technologies. In short, while innovations such as tokenized deposits and stablecoins can make payments settlement faster and more programmable, technology alone cannot supply the trust, liquidity, information, and legal certainty on which financial systems depend. Furthermore, innovations that reduce financial frictions may shift risks and market power across banks, nonbank intermediaries, countries, and central banks.

Some participants focused heavily on stablecoins, questioning whether they can reliably function as money and to what extent policymakers can exert control over them. In a panel discussion, Pablo Hernández de Cos argued that stablecoins currently fall short of traditional money in three respects: maintaining a single value at par, operating across platforms, and supporting financial integrity. Instead, tokenized bank deposits may be preferred for most payments because they retain the two-tier monetary structure in which commercial bank money settles in central bank money. Kristalina Georgieva stressed in the same panel discussion that stablecoins can move rapidly across borders, making capital controls more porous and encouraging currency substitution in emerging markets. She argued that these risks require internationally consistent regulation and larger foreign exchange buffers in vulnerable countries. She further cautioned that any reduction in borrowing costs for countries that issue stablecoin reserve assets would be no substitute for fiscal discipline.

Eswar Prasad dug deeper into the international consequences of financial innovation in presenting his paper “Financial Innovation and the International Monetary System” (Prasad, Liao, and Zhang 2026). Although the share of official foreign exchange reserves held in U.S. dollars has declined, the dollar continues to dominate most dimensions of global finance. Financial innovation could make it easier to transact directly in smaller currencies while also increasing the demand for U.S. dollars, as dollar-backed stablecoins make safe dollar assets easier to acquire and use around the world. Prasad argued that because financial markets become more attractive as they grow deeper and more liquid, financial innovation could strengthen the dollar’s role as a reserve currency. However, he warned that currency fragmentation could increase financial instability during periods of stress. In her discussion of the paper, Catherine Mann emphasized that institutions, political stability, fiscal policy, and trust remain central to a currency’s dominance.

For many financial innovations, the breadth and pace of adoption was a key topic of conversation. In his paper “Tokenized Finance and the Perimeter of Central Banking,” Darrell Duffie noted that while tokenized securities have benefits, such as around-the-clock operation, atomic exchange, and smart contracts, they currently play a minor role in global markets. Moreover, Duffie warned that the absence of safe and programmable settlement money may be a barrier to their growth. In particular, Duffie argued that stablecoins and tokenized commercial bank deposits are not safe enough to settle transactions at the core of the financial system, such as government securities financing or clearinghouse payments. As a result, central banks must either issue tokenized reserves, link conventional payment systems to outside ledgers, or allow tightly regulated private intermediaries to issue tokens fully backed by reserves. In her discussion of the paper, Isabel Schnabel showed how the Eurosystem is exploring these approaches. Both Schnabel and Duffie emphasized that interoperability between new and legacy systems is essential to avoid splitting liquidity across platforms, which could raise funding costs and slow adoption. In a later panel discussion, Arvind Krishnamurthy drew a broader lesson from the historical development of repurchase agreements: When a new form of money succeeds, leverage and fragility tend to grow around it, eventually requiring the central bank to develop both liquidity facilities and regulatory authority native to that market. He argued that the Federal Reserve should prepare for the possibility that stablecoins and tokenized securities will reach systemic scale.

Participants had mixed perspectives on the efficiency gains from new payments technologies in general and stablecoins in particular. In a panel discussion, Stefano Scarpetta presented evidence that financial sector digitalization can improve productivity, especially in industries that rely heavily on intangible capital, and highlighted fast, interoperable payment systems in India, Brazil, and Poland. In a later panel, Wenxin Du questioned some of the conventional wisdom around stablecoins and their benefits. She emphasized that stablecoin benefits are often overstated because they omit the fact that holders must move between local currencies at both ends of a transaction—a “stablecoin sandwich.” She also argued that settling every stablecoin transaction immediately on a gross basis would require counterparties to hold much more liquidity than today’s payment systems, which economize liquidity by relying heavily on netting. Finally, Du questioned whether stablecoins can meaningfully lower the retail cost of cross-border payments, noting that the high cost of these payments today often reflects factors such as incentives, compliance, and anti-money laundering protocols rather than obsolete payment rails.

Even taking the benefits of stablecoins as a given, some participants noted that an increase in adoption could increase economic volatility. In her paper “Stablecoin Risk,” Christine Parlour argued that a transition to stablecoins pushes credit toward nonbank intermediaries, which have an information advantage in gauging a firm’s upside risk relative to banks, which are better at estimating a firm’s downside risk (Parlour, Rajan, and Zhu 2026). As a result, nonbank intermediaries are more likely than banks to lend to firms with high and low risk (at the expense of moderate-risk firms). This shift increases economic volatility and could lead to more extreme outcomes. In his discussion of the paper, Itay Goldstein agreed that the information channel was important but questioned whether banks would simply lose this role: Tokenized deposits could let them adopt much of the new technology, while fintech data could replace some information currently unique to deposit accounts. Moving beyond stablecoins’ direct effect on economic activity, Jesús Fernandéz-Villaverde cautioned in a later panel discussion that stablecoins may reduce the effectiveness of financial sanctions, while repeated use of the dollar system as a policy tool could encourage a shift toward non-dollar alternatives.

Additional risks to financial markets may stem from artificial intelligence, another key conference theme. In his paper, “Artificial Intelligence and the Brave New World in Finance,” Markus Brunnermeier warned of the effect of “asymmetric understanding” on financial markets: AI agents may learn to predict human behavior, while humans remain unable to interpret or anticipate the agents’ strategies. This asymmetry could make market prices less informative for both private participants and central banks, facilitating new forms of anti-competitive coordination. Brunnermeier proposed preserving human fallback markets, simplifying policy rules, and stress-testing financial institutions for over-reliance on specific AI models. In his discussion of the paper, Raghuram Rajan argued that financial markets will be shaped by the interaction of AI and humans, who are themselves hard to explain or align, and that heterogeneity in AI architecture will weaken coordination risks in financial markets.

In summary, the 2026 Jackson Hole Economic Policy Symposium highlighted the promise but also the limits and risks of financial innovation. Stablecoins, tokenization, and AI may create benefits in both financial markets and the real economy but are unlikely to eliminate the economic value of existing institutions. The Symposium website collects the full papers, presentations, and discussions from the event.