In Defense of the Free-Banking Stablecoins

Stablecoins, a form of crypto-currencies, have come under increasing regulatory scrutiny. The justification for this arises by analogizing the stablecoins to banknotes issued in the early nineteenth century during a period known as the free-banking era. During that era, banks in many states were free to issue their own notes with little supervision. The results, according to the critics, were an unstable banking system that resulted in the federal government printing its own money.

In this Article, we examine the history of that era looking at judicial decisions from that time. We conclude that the judiciary had no qualms about free-banking, and if anything, they had concerns about governments printing money. Using the lessons from that era we recommend a slow and steady approach to regulating stablecoins and suggest that any regulation should come at the state level. We speculate that the motivation for the regulatory scrutiny may have more to do with government revenues instead of the public interest.