Forextime . com
Some of the better-known cryptocurrencies include Litecoin , Ethereum and Bitcoin .
worthless currency , take their profits and then disappear .
The Stablecoin Classification and Regulation Act , often referred to as the Stable Act , addressed this very fear . The bill , introduced into the US House of Representatives in November 2020 , called for any institution issuing a stablecoin denominated in US dollars to be a member of the Federal Reserve System and to hold 100 % reserves against any coin issuance . Such federal regulation , it was hoped , would prevent any “ wildcatting .”
Multiplicity of Currencies
The existence of so many different kinds of currency created a number of practical problems . The main one was figuring out the values of the different currencies . In daily transactions , merchants and customers could readily determine the value of US coins or Spanish reales by condition and weight of the silver and , sometimes , gold coins . However , bank notes were a different problem . There were thousands of different bank notes issued by private banks . Not surprisingly , the different bank notes had different values .
Few bank notes were worth face value . Most traded at a discount from 1 – 25 % of face value , depending on the financial strength and location of the bank . In the case of wildcat banks , the value could be zero . In this private currency system , bank note users had to constantly monitor the fluctuating values of the notes being used in transactions .
To determine the value of a piece of currency , a shopkeeper or consumer needed a bank note reporter . This weekly journal published entries for each bank note issued by various state-chartered banks across the country . It listed which notes were being counterfeited and how to spot a fake note . Imagine trying to run a shop where customers paid with a lot of different banks ’ notes . How long would it take to inspect all the notes , look up their various values ( and make sure they were not counterfeit ), and then tally the values ?
One can see the same sort of problems arising with a new private currency system built on various cryptocurrencies . How will people know which ones are valid and how much they are worth ? This is exactly the point made by St . Louis Federal
Reserve President James Bullard in February 2021 in a conversation with CNBC :
Before the Civil War , it was common for banks to issue their own notes … They were all trading around , and they traded at different discounts to each other , and people did not like it at all … I think the same thing would occur with Bitcoin here . You don ’ t want to go to a non-uniform currency where you ’ re walking into Starbucks and maybe you ’ ll pay with Ethereum , maybe you ’ ll pay with Ripple , maybe you ’ ll pay with Bitcoin , maybe you ’ ll pay with a dollar .
The problem indicated here is asymmetric information . In the 19th century , consumers lacked the information on issuing banks needed to make conversions . So , a uniform currency was generally welcomed when it arrived in the form of greenbacks and national bank notes . However , the situation that President Bullard describes will be handled in the future by a smart phone app . Digital wallets , currently being developed , will organize various digital currencies and will automatically pick the one or ones that will provide the most efficient and profitable payment . Already , one such application will convert Starbucks points into dollars to optimize a customer ’ s payment strategy .
What Counts as Money ?
At the heart of the multiplicity of currencies problem is the question of what , legally , is money ? For example , Congress could declare various instruments legal tender . In 1827 , it was the Spanish real . In 1862 , it was demand notes . The more pressing problem that arose and that persists to this day is the definition of “ current ” or “ lawful ” money .
In 1814 , the US Treasury held its money in various private banks . And , given that there were multiple currencies at the time and no US dollar bill , the Treasury had multiple accounts segregated by types of currency / asset : cash or local currency ( current money ), Treasury notes bearing interest , small Treasury notes not bearing interest and special deposits ( bank notes from suspended state banks ). Here , current money meant “ money that was valued at par ,” as cash meant coins and local currency
34 FINANCIAL HISTORY | Summer 2021 | www . MoAF . org