- History
- Economic
- Revitalizing History
Abstract: Unlike previous scholarship comparing stablecoins to free banks or money market funds, this paper establishes that payment stablecoins are essentially digital national banknotes, since both are backed by segregated, bankruptcy-remote, federal obligations. This analogy has two major implications. First, despite the failure of 20.4 percent of all banks chartered in the National Banking era, banknote holders recovered 100 cents on the dollar compared to average depositor losses of 34 to 37 cents. This suggests payment stablecoins will be similarly safe for holders. Second, while national banknotes and deposits grew in tandem, the opportunity cost from higher-yield uses of capital – such as lending – caused banks to chronically under-issue national banknotes. It thus seems likely that without competition from issuers able to pay stablecoin yield today’s banks will also under-issue stablecoins, thereby limiting the spread of the digital dollar at home and abroad.
