Modern money is a combination of public and private money. Public money includes central banks-issued cash and digital claims against central banks. Private money includes deposit claims against commercial banks. While the public sector protects the stability of money, up to 95% of money in developed economies is private.
Stablecoins are a form of private money. This is not a new concept — the idea of separating monetary and credit functions traces back 80 years. By lowering the cost of digital verification, blockchain technology can expand the role of both the public and private sector in the provision of money. While the public sector could attempt to connect with consumers and businesses directly, the private sector is likely to be more efficient in meeting the public’s needs and increasing choice.
Succeeding in this transformation will require the right balance between the public and private sectors. Countries that overemphasize the public approach will likely end up falling short in speed to market, competition, and innovation. They will also be unable to nurture the fintech players of the future. The history of the Internet is instructive — countries that harnessed the technology’s “powerful commercial engine” came out ahead — and the history of financial markets is too: Countries without robust regulatory frameworks may see under-reserved “wildcat stablecoins” and a race to the bottom on consumer protection.
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