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

Latest Crypto News


Latest Crypto News & Analysis

Editors’ Picks

US Treasury to launch formal review on stablecoins, Tether scrutinized ahead of oversight talks

The United States Treasury Department is preparing to present a report to the President’s Working Group for Financial Markets on stablecoin risks.

More Tether news

ICX Price Prediction: ICON prepares for 20% descent as bulls fade away

ICON price looks ready for a swift downswing after an explosive run over the past ten days. The crypto markets’ slowdown after the recent run-up makes this bearish scenario a perfect fit.

More Icon news

Avalanche Foundation raises $230 million to accelerate DeFi growth, AVAX surges to new record high

The Avalanche Foundation has announced a new investment round from a venture capital group led by Polychain Capital and Three Arrows Capital. The $230 million raised will support liquidity on the network’s DeFi ecosystem.

More Cryptocurrencies News

Ethereum Classic Price Prediction: ETC coils up for 40% upswing

Ethereum Classic price has been consolidating for about nine days without a clear directional bias. However, ETC shows that it is nearing a crucial support floor on a higher time frame, and an uptrend seems likely.

More Ethereum Classic news

BEST CRYPTO BROKERS/EXCHANGES



Bitcoin Weekly Forecast: Markets revert to mean, but BTC price remains indecisive

Bitcoin price shows considerable strength after springing from the recent crashes. Still, it is uncertain whether the current bullish impulse will morph into a new uptrend or lead to a more profound decline.

Read the weekly forecast

BTC

ETH

XRP