Private money will eventually replace fiat, government money. The reason is simple: Inflation (meaning currency devaluation) is a brand risk, and a private business would never be so foolish as to rip off customers via devaluation. It’s something about the desire for repeat business...
Conversely, governments have been devaluing for as long as they’ve been issuing money. The previous truth helps explain why cryptocurrencies and other private money forms have proliferated to begin with.
All of which calls into question the long-term viability of so-called “stablecoins.” Mostly pegged to the U.S. dollar, there’s a case to be made that “stablecoins” are a bad solution to a real problem. Think about it. If governments have always devalued, what’s to keep the U.S. Treasury from maintaining a blithe stance about the dollar? Oh wait, it already has one. See gold at $4,000.
Crucial about the yellow metal is that it doesn’t move up or down as much as the currencies in which it’s priced do. Looked at through the prism of “stablecoins,” there’s nothing stable about them as the dollar’s substantial decline over the past year indicates. This is a problem for dollar holders, but also stablecoin holders the world over. And the problems don’t end there.
Consider the recently passed GENIUS Act. Per the law stablecoins are exempt from bank-like regulation, but the tradeoff for the latter is that holders of deposited coins can’t pay interest on them. So far, so good? The answer is that it depends on your view of the world.
While interest payments on deposited stablecoins are prohibited, the entities holding them for customers have perhaps predictably found a way around the law in the form of “rewards,” which is just another form of interest. As Aaron Klein has reported at Brookings, Coinbase offers 4.1% rewards. Where there’s money there’s always money spent trying to move it to a higher use. So far, so good once again? Yes, seemingly. But for one thing, or realistically two things.
Just as banks don’t take in dollar deposits to stare lovingly at the money, neither do stablecoin warehouses pay to stare at stablecoins. Which means these warehouses for cryptos defined in terms of the dollar are acting as banks.
Once again, so far so good, but for the problem that banks themselves labor under all manner of rules and regulations in return for the privilege to act as responsible stewards for savers. To say the regulations they endure are time consuming and very expensive insults understatement.
What you’ve read isn’t a call for regulation as much as it’s a speculation that Coinbase et al will seek regulatory imprimatur on the matter. Just as the industry cheered Acts like GENIUS, the guess is that it would be quite pleased for crypto banks to be viewed before the law as real banks. Which is as it should be if they intend to act as banks. But there’s more.
While cryptocurrencies were supposed to replace fiat money, so-called stores of value like bitcoin measure themselves in dollars, and stablecoins are yet again directly pegged to dollars; meaning, stablecoins are pegged to something that is rather turbulent itself. It’s just a comment that for the supposed replacements of government money, they’re not all that different. It’s arguably a signal that regulation or none, blowups in a crypto space that’s billed as a safe, credible escape from government money is anything but.
Which is why the speculation here remains: private money will still replace fiat money. Just don’t expect to see the private money you’re seeing today still standing if and when this speculation comes true.
