Problem Set 21

Real-time payment systems always require a card network intermediary to authorize andsettle transfers.

FALSE

Real-time payment systems such as FedNow and RTP settle directly between banks without using card network intermediaries. They are independent payment rails that provide instant and final settlement 24/7.

Stablecoin issuance creates new broad money in the same way that bank lending does.

FALSE

Stablecoin issuance does not create new broad money; it tokenizes existing fiat currency that users exchange for digital tokens. No new credit is created in the process, unlike bank lending.

A retail central bank digital currency would likely increase the deposit fundingavailable to small commercial banks.

FALSE

A retail CBDC would likely reduce deposit funding available to smaller banks by offering a risk-free alternative directly from the central bank, which could attract funds away from traditional deposits.

In a two-tier CBDC model, commercial banks remain involved in distributing andservicing digital currency on behalf of the central bank.

TRUE

In a two-tier CBDC system, commercial banks distribute and manage customer access while the central bank handles issuance and settlement, preserving banks' intermediary role

Money market funds are outside the deposit insurance system but function as closesubstitutes for bank deposits in many portfolios.

TRUE

Money market funds lie outside deposit insurance yet are widely used as cash equivalents, illustrating their "shadow money" function and vulnerability to runs during stress.

Balances held in BigTech wallets like PayPal or Apple Cash are legally identical toinsured deposits held directly at a commercial bank.

FALSE

BigTech wallet balances are liabilities of the platform or its partner bank, not direct insured deposits owned by the user. The insurance covers the pooled account, not individual wallet holders.

Open banking regulations have reduced banks' control over customer data by allowingusers to grant access to third-party providers through secure APIs.

TRUE

Open banking rules give consumers control over their financial data, allowing them to authorize secure third-party access through standardized APIs, promoting competition and innovation.

Open finance refers to a narrower set of data-sharing rules focused only on paymentsand checking accounts.

FALSE

Open finance broadens open banking by including data from investments, insurance, and pensions, extending well beyond payments and checking accounts.

Algorithmic stablecoins have proven as reliable as collateralized stablecoins duringepisodes of market stress.

FALSE

Algorithmic stablecoins have repeatedly failed under stress (e.g.,TerraUSD/LUNA) because their stability depends on confidence and market incentives, unlike collateralized models backed by real assets.

The FedNow and RTP networks operate with identical liquidity and settlement account structures.

FALSE

FedNow and RTP differ in liquidity setup: RTP uses a prefunded joint account at the Fed, while FedNow settles each payment directly through participants' master accounts. They are not identical in structure.

Which idea best captures "modular finance" compared with traditional banking?

Financial services are broken into specialized layers such as payments, lending,and data analytics

Which statement best describes real-time payment systems?

They allow final settlement and fund availability within seconds

What distinguishes RTP from FedNow in how they settle payments?

RTP settles through a prefunded joint account, while FedNow settles in eachbank's master account

Which statement best describes a stablecoin?

A digital asset pegged to fiat backed by collateral (ex: USDC)

How are stablecoins different from bank deposits?

They represent tokenized claims

Stablecoins can maintain their value through different mechanisms. Which statementbest reflects this distinction?

Some use automated supply adjustments, others use collateral reserves

Which statement about central bank digital currencies (CBDCs) is most accurate?

Wholesale CBDCs focus on interbank settlement rather than public use

In a two-tier CBDC model, what role do commercial banks play?

They distribute CBDC but central bank maintains the core ledger

Which of the following is not an example of shadow banking?

Demand deposits at Zions Bank

Why does improving the speed and cost of payments matter for the economy?

Because slow, expensive payment systems act like a hidden tax

Which statement about BigTech or FinTech "balances" is most accurate?

They are liabilities of the platform, typically backed by pooled funds held atpartner banks

How have data-sharing regulations affected innovation in financial services?

They required banks to provide secure APIs, enabling growth in open banking andopen finance

Open Finance differs from Open Banking primarily because it...

Covers a broader range of products such as investments, insurance, and mortgages

What best defines platform banking?

Non-bank platforms control the customer interface, while regulated banksprovide the underlying infrastructure

In fintech, what does "distribution power" refer to?

Control over the customer interface where financial products are accessed anddelivered