From FT Alphaville:
Stablecoins as a euphemism for full-reserve banking
Everyone has a personal theory of money.
And by and large everyone’s theory differs to everyone else’s. Because money is in part philosophical as well as technical, and hence hugely subjective.
Major arguments often result from one person’s view of money being different to somebody else’s. But to be fair, it’s probably right that there are many ways of thinking of money.
One very fashionable theory of money is that if money became a better medium of exchange -- by way of the payments system becoming more frictionless and more instant -- while improving its stability by being fully-reserved and less risky by being controlled entirely by the central bank, everything in the economy would be better and improved.
Today, this theory of money is often accompanied by the idea that the central bank should become the predominant issuer of digital stablecoins backed purely by central bank reserves or government debt.
To wit, here’s Thomas Mayer, former chief economist at Deutsche Bank, writing in the FT on Monday:
Banking union was supposed to complete EMU, but its most critical component, a common deposit insurance, is still missing due to political resistance to risk sharing. While the German finance minister Olaf Scholz recently proposed a potential compromise, critics argue that the euro is doomed.As for the argument that this sort of thing would crowd out the private sector, Mr Mayer says that won’t happen because “in a world of digital euros, commercial banks’ main role would be to take deposits and lend them to investors.”
I believe there is a solution: the creation of a truly digital euro. The first step towards such a digital euro would be to introduce a bank deposit fully backed with central bank money. The ECB could effectively create funds needed to cover the deposit by purchasing outstanding eurozone government bonds.
When Alphaville penned this piece back in 2012 arguing for the introduction of an M-euro (because in 2012 the trendy thing was putting an M in front digital money initiatives rather than calling them stablecoins outright), we also thought and argued similar things to what Mr Mayer is arguing above.
But another useful and not entirely orthodox way of thinking of money is as a claim on continuously variable liquidity in the system. Or, more simply, as a rationing system designed to keep supply and demand in check and investment headed to where it’s needed........MUCH MORE
*Although, owing to a certain oil deal gone bad, Williston on Contracts also comes to mind.
