All towns have been buzzing about stablecoins. Lawmakers all across the world have expressed concerns about this group of digital assets, seeing its use in cross-border transactions as a danger to the use of government-issued currencies. Two notable financial gurus have just chimed in with a paper titled “Taming Wildcat Stablecoins.” Surprisingly, these digital tokens are intrinsically stable, which benefits investors during periods of high volatility in assets like Bitcoin, Ethereum, and other cryptocurrencies.
The Yale economist Gary Gorton and the United States Federal Reserve attorney Jeffery Zhang, on the other hand, are concerned about something else. The analogy drawn between stablecoin and the Free Banking Era — a world of wildcat banking back in the 19th century if the former is left unregulated – was one of the most notable aspects of the 49-page document
The author also argued that safeguarding the state’s monetary sovereignty is critical for developing monetary policy and that policymakers should learn from history to avoid repeating the same mistakes. The only option to counteract the hazards connected with these digital tokens, according to the report, is to regulate stablecoin issuers as banks and issue a central bank digital currency [CBDC].
Reactions to Gorton-stablecoin Zhang’s paper in the community
Paul Krugman, a Nobel laureate and member of the American Philosophical Society, praised the duo’s academic work, calling it “simply a modern version of free banking,” in which “private banks issued their own notes presumably backed by species.” He went on to describe the current system as “crisis-ridden.” Krugman is one of several critics of digital assets. As a result, his most recent remark has drawn some criticism.
The cryptocurrency community did not respond well to the collaborative scientific effort for the article. Arturo Portilla, a well-known XRP supporter, and fintech lawyer said on Twitter,
“LOL. Option a): Require stablecoin issuers to become banks. Option b): Require stablecoin issuers to become unprofitable businesses. Option c): Introduce CBDCs and tax stablecoins to death. I’m guessing Jeremy Allaire isn’t having a good time right now.”
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