Yale economist Gary Gorton and U.S. Federal Reserve attorney Jeffery Zhang urge regulating issuers as banks and issuing a CBDC.

If left unchecked, the world of stablecoins could evolve into one reminiscent of the 19th century’s free banking period in the U.S., according to two prominent financial experts.

Yale economist Gary Gorton and U.S. Federal Reserve attorney Jeffery Zhang said there existed systemic risk to the financial system by a “digital form of privately produced money” pegged one-to-one with “safe” assets.

In an academic paper titled “Taming Wildcat Stablecoins” released Saturday, the pair describe similarities they see in stablecoins with that of privately issued “wildcat” bank money in the past.

Gorton and Zhang liken stablecoins to a time in U.S. history when private banks issued their own notes in order to meet growing consumer demand, making it harder to transact as a result of fluctuating prices.

Private banknotes were also uninsured. The threat to the financial system posed by bank runs was very real, and at times, devastating. Privately produced monies, they argue, are not an effective medium of exchange because they are not always accepted at face value and are subject to bank runs.

“If policymakers wait a decade, stablecoin issuers will become the money market funds of the 21st century—too big to fail—and the government will have to step in with a rescue package whenever there’s a financial panic,” the paper reads.

Additionally, preserving the monetary sovereignty of the government is critical for establishing monetary policy, they wrote. “Policymakers should learn from history and not make the same mistakes again.”

Therefore, regulating stablecoin issuers as banks and issuing a central bank digital currency, so as to have one uniform currency, is the way forward to combating those risks, the authors said.

Yet George Selgin, Senior Fellow and Director of the Cato Institute’s Center for Monetary and Financial Alternatives, said Gorton and Zhang’s view is misleading.

Selgin argues the sovereignty demands of the state exceeded that of the consumer’s and was critical in establishing a financial monopoly by the banks and those that manage them.

“Even the decision to establish a uniform U.S. currency during the Civil War also had nothing to do with consumers’ preferences: if it had, there’d have been no need to a punitive 10% tax to force state banks to quit issuing their own notes.”

All writers’ opinions are their own and do not constitute financial advice in any way whatsoever. Nothing published by CoinDesk constitutes an investment recommendation, nor should any data or Content published by CoinDesk be relied upon for any investment activities. CoinDesk strongly recommends that you perform your own independent research and/or speak with a qualified investment professional before making any financial decisions.

Cryptos feed Join Telegram

Recommended content


Recommended Content

Editors’ Picks

Bitcoin Weekly Forecast: BTC’s Q3 close and what to expect in Q4?

Bitcoin Weekly Forecast: BTC’s Q3 close and what to expect in Q4?

Bitcoin price is trading above two crucial levels, suggesting a stable foothold. Combining this outlook with a bullish divergence signal, BTC holders should expect a favorable outcome. However, since the third quarter will end in a few hours, there is bound to be abnormal volatility in the market, which could trigger massive moves in either direction, so investors need to be cautious. 

More Bitcoin news

Shiba Inu price: Shiba Eternity download day the biggest bullish catalyst in SHIB history?

Shiba Inu price: Shiba Eternity download day the biggest bullish catalyst in SHIB history?

Shytoshi Kusama, the project lead for Shiba Inu, has dropped a teaser about Shiba Eternity for the SHIB community. Proponents expect the launch of the collectible card game to be a bullish catalyst for SHIB.

More Shiba Inu News

Staking is coming to Chainlink this December as LINK price stands firm

Staking is coming to Chainlink this December as LINK price stands firm

LINK is trying to find its feet in the wake of declines that followed its rejection from resistance at $8.40. Bulls have managed to sustain a generally up-trending market and Chainlink is up nearly 17.50% from its September low at $6.56.

More Chainlink News

Ethereum Classic bulls take charge, a retest of $30 on the cards

Ethereum Classic bulls take charge, a retest of $30 on the cards

Ethereum Classic price ranges with no directional bias in sight. This trend could continue unless Bitcoin decides to do something. Regardless, investors should prepare for a minor downtrend before ETC rallies. 

More Ethereum Classic news

Bitcoin: BTC’s Q3 close and what to expect in Q4?

Bitcoin: BTC’s Q3 close and what to expect in Q4?

Bitcoin price has developed a bullish divergence with RSI, hinting at more upside. Despite the optimistic technicals, investors should expect volatile swings before the end of the third quarter of 2022. 

Read full analysis

BTC

ETH

XRP