Wednesday, 21 July 2021
Stablecoin is thousands of years old.
A stablecoin organisation is one which accepts deposits from people and promises to return those deposits immediately or at short notice or transfer some of the money to a third party if the depositor so wishes. But that’s what banks have done ever since banks first appeared, which was thousands of years ago: certainly as far back as Ancient Greece and possibly earlier.
The only difference between a stablecoin organisation and a bank is that stablecoin organisations do the above transfers electronically whereas banks used to do the transfers using paper. But even that difference has diminished in recent decades thanks to credit cards and the like issued by banks.
Thus as Martin Wolf said, stablecoin organisations should be regulated like banks. So what should be basic rules of that type of regulation be? Well here’s a very simple set of rules (approved of by Martin Wolf incidentally).
First, the only organisation (stablecoin or bank) which should be allowed to tell depositors their money is totally safe (i.e. that the “coin” is “stable”) are those which have a stock of reserves to match deposits dollar for dollar.
As for the rest, they should be allowed to do anything they like, long as they do not break the law, e.g. the law of contract. Plus the actual wording of their publicity should be constantly and carefully scrutinised to make sure banks and stablecoin organisations do not indulge in the trick that banks have tried over and over throughout history, namely to give the impression that deposits are safe when they are not.
And what do you know? That’s pretty much what full reserve banking (aka “narrow banking”, aka “sovereign money”) consists of, which is backed incidentally (as intimated above) by Martin Wolf.