Both Substack pieces are great; I haven’t read the paper yet. Stablecoins seem like the best way to maintain the “Treasury Standard.” In time banks will have to join that party, especially if the market gets comfortable with something less than fully reserved stablecoins. Banks would also argue that only they (as regulated entities) should be permitted to issue fractional stablecoins and if they succeed, there won’t be enough margin in fully reserved stablecoins for non-banks to compete.

Although it seems like fractionally reserving would also cap demand for Treasuries sooner or later. When that demand dries up, maintaining the reserve currency would necessitate some kind of dollar backing, à la your proposal at the BPI this spring. In the end it all comes back to fiscal discipline, which is downstream from national character. We haven’t balanced a budget in over two decades and the public appetite for bread & circuses seems strong as ever today. I hope I’m wrong.

Thanks. I think (at least initially) what we’re going to see are the big finance companies that already operate money market mutual funds essentially do the same thing with stablecoins. Competition will likely push them to pay interest on these stablecoins (in terms of the stablecoin itself). However, doing so would make them securities.