The explosion in stablecoins revives a debate around “free banking”

THE FAST-MOVINGUSD frontier of financial innovation can seem an intimidating place. Concepts such as decentralisation, distributed ledgers and symmetric encryption can befuddle the outsider. Scholars and regulators may therefore have been relieved to spot parallels between the burgeoning world of stablecoins—digital tokens that are pegged to an existing currency or commodity—and America’s free-banking era of the 19th century. Indeed, recent discussions about stablecoins have sparked a lively debate around the history of privately issued money.Together the dozens of stablecoins in existence, which include Dai, Tether and coin, have a market capitalisation of close to $150bn. As they have exploded in value, their similarity to banks has begun to exercise regulators. Like banks, they in effect take deposits and promise immediate redemption; if many holders want to withdraw their money at the same time, and the issuer holds risky assets, then the digital coins could be in danger of collapsing. On November 30th Janet Yellen, America’s treasury secretary, said that the tokens presented “significant risks” and pressed for more regulation.