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Money is clever and weird. It’s completely abstract, but it also repeats our social structure of power. It is a form of memory, a way of sorting out strangers, and a utilitarian tool in which the value of the non-immersive society is financially triangulated. More than that, it is what we use to pay for window cleaners.
Because it is a social material, money is constantly evolving, from giant stone tools to digital payments. Is Stablecoins the next stage? According to BIS, no.
Rather, no! 🤬🤬🤬
Martin Arnold from Mainft:
Top central bankers have said that stupid bankers have made a ridiculous assessment of “bad performance” of key requirements for widespread use as money, and that President Donald Trump has denied the push to make it the mainstream financial pillar.
The deep and detailed reasons for Bis crossing were skillfully chosen by Chris Giles.
Instead of owning dollars that are likely to be intermediated by a commercial bank, you own a tether or USDC coin. This generally needs to be converted to US dollars if you use them.
In other words, BIS believes stablecoins fail the test for singles. If you’re a cryptography buddy who lives in your mom’s basement, then failing the single test might be a dream. Among central bankers, it’s like a nightmare.
To qualify as money, you must accept things like money in everything without hesitation. As long as Stablecoins have an exchange rate, this will not happen.
Furthermore, BIS believes we all should care. Because there is no general knowledge about the value of money:
The financial system is halting…
It’s not great.
As hyperbolic lines can be heard, the idea that when money’s singleness collapses, there is not without merit. A go-to example that central bankers, economic historians and columnists love to use is the American free banking era.
As for the non-history nerds, I thought I’d take a quick look to see how strong the similarities are in fact.
The President’s precedent
Trump doesn’t love Jay Powell. However, he still does not match the level of antipathy demonstrated by Andrew Jackson, the second comfortable former president, towards the US second bank, the closest thing America had to central banks in the 19th century.
By refusing to renew the bank’s charter and withdrawing all federal funds, Jackson drove the facility to the ground, undoubtedly beginning both the panic of 1837 and the major economic recession that followed.
By doing so, he was also led to the so-called free banking era. 🥳
Between 1837 and 1864, most people were able to sway and declare themselves banks in the state with free banking laws. Free banks issued their own bills, each declared equal. However, free banking did not mean the rules. As the Philadelphia Fed explains:
The Free Banking Act specified that state banking authorities have determined general operating rules and minimum capital requirements. There are important rules that are requirements for states imposed on free banks to post collateral in the form of government bonds to support banknotes.
moreover:
Only state and federal bonds were eligible to be listed as collateral. A typical requirement was that the free bank deposited the state banking authority with the equivalent of one dollar worth of eligible bonds on the dollar worth of bills.
State-level surveillance and fully secured banknotes.
Hmm.
On June 17th, the Senate passed the Genius Act. There are still a few hurdles to clear before it becomes law, but the main driving force is that states can regulate the ridiculous things, and publishers must maintain identifiable reserves on at least one-to-one basis.
A genius requires collateral in the form of a T-Bill in the US or something very similar to a T-Bill. The collateral specifications under the free banking law were somewhat looser. Therefore, despite the declaration of the memo as worth face value, a discount of 10 or 20 percent of par was not uncommon for 19th century banknotes traded in secondary exchanges.
Turn to this chart showing the average, minimum, and maximum discounts Indiana bills traded with face value over the period.
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Furthermore, the market value of banknotes fluctuated quite dramatically over a short period of time. This is a monthly graph of modal discounts on banknotes issued in 1839 by a few free banking states.
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Despite being fully secured, banknote holders frequently suffered losses in the event of bank failure. The period was filled with bank breakdowns.
Free banking ended with the passing of the Civil War and national banking practices of 1863 and 1864. This unified the currency, helped fund the war, and taxed state bank memos. The incidence of bank breakdowns has plummeted.
So, while the similarities look fascinating, they are old enough to remember the epic explosion of Terra’s Stablecoin three years ago, it’s surprising when the post-Genius US regulations Stablecoin prices rival the wild price behavior of American banks in the early 19th century.
If it’s not money, what?
We can understand the sense of smell of the screw. They are right that stubcoins are not money. And we can see why they may be wary of their spread.
But we can’t see them leave soon. Stablecoins are financial assets with many use cases. As Dan Davis wrote, they may usefully shake up the cozy oligogoly, which causes the unusually high card fees that torment ordinary Americans. Moreover, they are very important for those who want to get an on-ramp into the crypto realm. And we can’t think of a better way to dodge Trump’s planned remittance tax, sanctions, or criminal criminal funds.
And it’s a big market.
