Greg Ip published "Stablecoins Are Private Money. That's Why They're a Risk to the Economy" in The Wall Street Journal a few days ago. And now here is Nic Carter with a solid take-down of Ip (and a pretty good education on where stablecoins sit in the tradfi perception at the moment).

Carter presents Ip's arguments as a series of claims which he Carter proceeds to dismantle:

Claim: the history of Free Banking demonstrates the imprudence of allowing private banknote issuanceClaim: the history of Free Banking demonstrates the imprudence of allowing private banknote issuance

Carter is particularly good here as he has written on this topic extensively in the past (#1060871). He points out that free-banking in the US (Ip's primary evidence of stablecoin doom) never really existed, and that the free-banking eras in Scotland and Canada were a far better example of what a stablecoin world might look like.

Claim: Stablecoins might “break the buck” like Money Market FundsClaim: Stablecoins might “break the buck” like Money Market Funds

Carter's main defense here is that money market funds didn't break the buck (very much...there was only one during the GFC?) and that stablecoins under the GENIUS act have at least as strong reserve requirements.

Claim: Stablecoins do not exhibit “singleness”Claim: Stablecoins do not exhibit “singleness”

Apparently, Ip is concerned that one dollar stablecoin won't be treated the same as another dollar stablecoin and this will lead to people being uncertain what "dollar" they will accept. The world where one USD-fill-in-your-blank carries a different value than another is probably not a great world.

Carter's main defense here is that people are using stablecoins and that bank deposits have had their own momentary devaluations.

Does a medium have to be absolutely perfect to meet some economist’s definition of money? It would be completely ahistorical and empirically blind to presume so.

This is an interesting complaint. Especially in the context of thinking about whether Spark is Bitcoin (#1497763). Bitcoin is moving into a similar kind of world where we have a bitcoin balance in ecash or ark or spark or liquid or with some custodian and they get passed around on lightning without too much fanfare (so far). Perhaps bitcoin has more singleness than stablecoins or banks.

Claim: Stablecoins could back their reserves with BitcoinClaim: Stablecoins could back their reserves with Bitcoin

I didn't find this point terribly good. Ip claims that there are loopholes by which stablecoins can end up holding assets that are not deemed "safe" by the financial overlords. Carter defends this mostly by saying, no, that's not true. Maybe that's the defense that tradfi wants to hear, but personally, I think holding bitcoin has been something that helped get some of the stablecoins through rough times.

Claim: Stablecoins aren’t used for “real world” paymentsClaim: Stablecoins aren’t used for “real world” payments

Carter says that most movements of money are actually within financial markets and not "real-world" payments:

Were Ip to consider the conventional dollar system, he would realize that the vast, vast majority of dollar transaction volume – at least 80-90% – has to do with financial markets. Securities settlement, repos, clearing, FX, and so on. The volume of “real world” payments, though large in absolute terms, is completely dwarfed by the amount of cash that sloshes around daily in financial markets. So even if that 1% statistic were accurate, it wouldn’t discredit stablecoins at all. Of course they are used to settle financial market transactions. That’s how money is overwhelmingly used everywhere.

I found this surprising, but upon further reflection less so. It is kinda funny how we have this financial world that is doing...something...in the background and that that is what most movements of money are concerned with.

Carter also has some nice data on the number of real-world payments completed with stablecoins. Although, I don't think it is strong enough to claim that people are using stablecoins everywhere.

ConclusionConclusion

Stripping away the analogies, the empirical record for stablecoins is compelling enough. Tether and Circle have suffered countless shocks and confidence crises, political harassment, debanking, a monetary tightening cycle, and failures of the very banks they relied on. They’ve emerged from these crises with intact pegs and growing global userbases. It is sophistry to assert that they can’t serve as money because they don’t suit an economists’ definition of what money is.

The deeper issue is that stablecoins expose the ideological failures of the establishment over the last decade. Over the past decade, the dollar’s most successful new expansion came not from the Fed, not from a CBDC, not from a banking consortium, but from the crypto industry – warts and all. Acknowledging the successes of decentralized systems like Free Banking or stablecoins is painful for an establishment that defines money as the exclusive purview of the state. But neither the history nor the present-day data cooperate with the establishment’s interpretation.

I still have yet to see the usefulness of stablecoins beyond regulatory arbitrage, but since regulations tend to be onerous and often ill-considered, and getting around them seems like a real value add, who am I to criticize?