#master accounts

In the battle over stablecoin regulation, defenders of the pending legislation make much of the need for the U.S. to become the dominant global leader.  That’s fine, but what if the new stablecoin framework gives the U.S. crypto preeminence at the cost of U.S. bank resilience and macroeconomic growth?  That would be a high price to pay, but it’s nonetheless the Faustian bargain lurking in the latest legislation.

As our analyses have made clear, the House and Senate bills address only payment stablecoins – i.e., digital assets used by consumers and companies to settle financial accounts or to purchase goods and services.  The idea is to make regulated stablecoins as reliable a medium of exchange as dollars, with the bills’ reserve-asset requirements meant to ensure that one stablecoin dollar always equals one U.S. dollar. This is fine as far as it goes, but that’s not far enough to ensure payment-system finality, ubiquity, and equality.  A more robust stablecoin also does little but make it still more likely that regulated banks will be disintermediated as deposits move from the current, fractional system into a new, “narrow bank” model that does little for anyone but stablecoin issuers, their affiliates, and parent companies such as giant tech platforms.

A dollar’s worth of stablecoins is little more than an abstraction until one knows how it moves across the payment system.  If the payment rails are weak or the engineer is negligent, then armored boxcars just make an even bigger, harder bang when they derail.…