- Key insight: A primary criticism of stablecoins harks back to the era of free banking, when individual banks printed their own notes. But that era of private money bears little resemblance to the modern realities of stablecoin issuance.
- What's at stake: As the U.S. moves closer to a federal framework for stablecoins, it would be a mistake to let fear of "private money" overwhelm the policy debate.
- Forward look: Stablecoins carry risks, and those risks deserve serious treatment. They do not, however, settle the case against stablecoins.
As the U.S. moves closer to a federal framework for stablecoins, it would be a mistake to let fear of "private money" overwhelm the
That argument draws the wrong lesson from history. At best, they point out the regulatory and design questions raised by stablecoins, including issues around reserves, redemption, liquidity and supervision. These are precisely the questions that financial regulation exists to address.
Viewed through that lens, the enactment of the GENIUS Act represents an important shift in the debate. Congress has moved the debate past the threshold question of whether stablecoins should exist. The question is whether regulation can make stablecoins sufficiently safe and reliable to function alongside other forms of private money in the modern financial system. History suggests the answer is yes.
The principal problem with free banking was not private issuance alone. It was issuance without standardized reserve requirements, credible redemption mechanisms, prudential supervision or effective disclosure. The resulting system was fragmented, opaque and prone to instability. Private money was not abolished. It was brought within a regulatory framework.
Over time, policymakers developed deposit insurance, capital requirements, liquidity standards and resolution regimes. Modern bank deposits remain private liabilities, yet consumers rarely question whether a dollar deposited at one bank is worth a dollar deposited at another. Regulation did not eliminate risk, but it created the conditions for private money to function at scale.
The same lesson followed the 2008 financial crisis. Policymakers did not conclude that banks or money market funds were inherently incompatible with financial stability. They strengthened capital rules, imposed liquidity requirements and reformed money market fund regulation. Stablecoins should be viewed through the same framework.
A more useful lens than the "private money" label is moneyness: how closely an instrument functions like money in practice. Moneyness is not automatic. It depends on whether the instrument is reliable, redeemable, transferable and trusted. Those qualities are created through law, regulation and institutional design.
The GENIUS Act moves stablecoins meaningfully in that direction. Payment stablecoins must be backed one-to-one by highly liquid assets such as cash, bank deposits and short-duration U.S. Treasury securities. The act imposes reserve reporting requirements, independent examinations, statutory redemption rights and prudential oversight. It also establishes insolvency protections that prioritize stablecoin holders.
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The act does not make stablecoins identical to bank deposits or central bank money. Nor should it. Modern monetary systems already contain multiple forms of money with different legal structures and risk profiles. The relevant question is whether stablecoins can function safely and effectively within that system.
Stablecoin run risk deserves a direct answer. The concern is real but often overstated. Nor should this risk be judged by the standard of bank run risk.
Unlike banks, regulated stablecoins generally do not engage in the maturity transformation that makes deposit runs destabilizing. They do not fund long-term lending portfolios with short-term liabilities. Their reserve assets are designed to be liquidated or redeemed under stress, although operational and liquidity risks remain.
The same is true for the "singleness of money" argument, the idea that stablecoins fail because they occasionally trade above or below par. The modern monetary system does not satisfy any idealized conception of singleness. Prepaid cards, gift cards, transit cards and stored-value instruments are already part of daily commerce, and none of them are fully interchangeable at par in all contexts. As the paper
Former Federal Reserve Vice Chair for Supervision Michael Barr has raised concerns about reserve composition, uninsured deposits, repo arrangements and operational risks. These concerns should not be dismissed. They go to reserve design, liquidity management, operational resilience and supervisory architecture.
Foreign issuers, cross-border supervision and stablecoin interactions with the banking system also remain challenges. But these are design questions, not existential objections. Whether stablecoin frameworks succeed will depend on implementation, supervision and market discipline, as is true for banks, money market funds and other financial institutions.
The free banking era led to banking regulation. The 2008 crisis led to reforms of banks and money market funds. Stablecoins regulation is happening now, in real time.
Stablecoins carry risks, and those risks deserve serious treatment. They do not, however, settle the case against stablecoins. The more useful discussion is over what rules stablecoins need to be reliable in practice: clear reserves, credible redemption rights, sound supervision and legal protections for holders. The Genius Act and its rulemakings seek to provide the framework for that reliability and trust.
