The History of Private Banknotes in the 1800s May Hint at the Future of Stablecoins: Not a Good One, Says Goldman Sachs


According to analysts at Goldman Sachs, the current state of stablecoins shares similarities with private banknotes, which circulated as currency in the 19th century and were later replaced by domestic banknotes subject to federal oversight. .

Stablecoin is a type of cryptocurrency tied to other assets, often fiat currencies such as the US dollar. Regulation of these coins “seems likely,” Goldman Sachs analysts wrote in a Monday note.

Analysts have drawn a comparison between stablecoins and private banknotes issued during the era of free banking in the United States from 1837 to 1863. These notes were used as currency, but traded at a discount, due to the large number in circulation and the difficulty of discovering the bank. -specific risk across the system, analysts noted.

Similar to how banknotes react to bank-specific risk, different stablecoins are exposed to protocol-specific risk, analysts say. Meanwhile, “there are a large number of alternative stablecoins that can co-exist, each with their own risk profile, making them difficult to use on all platforms, much like private money was once far from issuing banks. “, wrote the analysts.

“The second key lesson from this experience is that while private money and public money can co-exist for a time, the private money system is eventually regulated and/or later supplanted by public money,” according to the analysts. Private banknotes were replaced by national banknotes after the passage of the National Banks Act in 1863.

Proper regulation could improve stability and reduce risk in the stablecoin market, Goldman Sachs analysts noted. However, it is also possible for regulators to “move stablecoins through government-backed alternative medium,” the analysts wrote.

The stablecoin market has attracted increasing regulatory attention, especially after the collapse of TerraUSD USTUSD,
once the largest algorithmic stablecoin. Treasury Secretary Janet Yellen said the case showed the potential threat to financial stability posed by unregulated cryptocurrency markets.

In November, President Joe Biden’s Capital Markets Task Force called on Congress to pass laws that would require stablecoins to be issued by federally regulated banks.

Lily: The 24-year-old quit his job at hedge fund powerhouse Citadel to build on the Terra blockchain. It collapsed two months later.

Read also : Terra crash draws Washington’s attention to crypto regulation


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