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Future of Stablecoins?

August 6, 2021 • Posted in Currency Trading

The National Bank Act of 1863 created a national currency backed by U.S. Treasury bonds and curtailed the era of Free Banking (wildcat private currencies), which resembles the current environment of stablecoins (such as Tether and Diem). Subsequent legislation taxed private currencies out of existence. Does this history offer lessons for the future of stablecoins? In their July 2021 paper entitled “Taming Wildcat Stablecoins”, Gary Gorton and Jeffery Zhang explore the feasibility of stablecoins as a medium of exchange, with focus on acceptance at par and susceptibility to runs. They also present proposals to address  systemic stablecoin risks. Based on lessons from history, they conclude that: (more…)

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