stablecoins > Is one new, unknown word enough to create some sort of magical aura around its meaning? In today's "hyper-spectacular" conditions, it seems so.
The buzz caused by "cryptocurrencies," with Bitcoin being the first and best, has rekindled in people's imaginations that same magic which once gleamed (before it burst) in the stock market. All of a sudden, the way to get rich appeared so easy (and so "democratic") that few paused to wonder how it was possible for "papers" (stocks...) to rise in value every day and every hour. Even after the crash, where most lost fortunes ("the greatest redistribution of wealth in favor of a few," as some noted), even today, it's questionable whether everyone has realized they were victims of a scheme called "the little airplane."
Stablecoins, of American origin for now, appear as the new "investment hype." They are an electronic form, supposedly backed by the dollar. A stablecoin (and many are already sprouting with various names from various carpetbaggers) is supposedly tied to one dollar. Which means that if someone holds 1000 stablecoins of X or Y name and origin, it's as if they hold 1000 dollars. "As if."
What does "as if" mean? What does "tied" mean? It is assumed that each stablecoin issuer issues as many (which they sell...) as many dollars as they have in their possession. But the issuers of stablecoins DON'T even have dollars in their vaults. They have U.S. government bonds, which are "as if" liquid. With arbitrary imagination, one might assume that by buying stablecoins, one buys shares in U.S. bonds. No relation! Stablecoins are not dollars, they are not shares in U.S. bonds, they are not money. They are a digital representation!
Essentially, it is the creation of a parallel private mechanism for "money issuance" as a representation of money issuance itself! Thus, they virtually and accounting-wise double the "money supply" (which is why they seem so magical) as wealth. The idea that "money begets money" has been technologically renewed!
British academic Richard Murphy (specializing in accounting practice at the University of Sheffield) wrote about this at the beginning of last September:
... The stablecoin project recreates the risks of the shadow banking system we saw before the 2008 economic crisis. ... The scale of the problem is large. Already, 280 billion dollars are held in so-called stablecoins, and that is not insignificant. It is a systemically significant amount equivalent to the size of a major bank failure. And we know that major bank failures were the cause of the 2008 financial crisis; the collapse of Lehman Brothers was not averted, and ultimately, the bailout of the banking system was paid for by taxpayers.
... This is a risk we must understand. Financial experts like to dress old risks in new language and call them innovation. Stablecoins are just another form of unregulated deposit collection. They are not innovative. There is nothing truly new about them, nor in issuers pretending that private tokens are as safe as government bonds. All profits go to speculators. All losses will burden the public.
... Who controls money creation, governments or private speculators? The stablecoin project has shifted power away from the formal characteristics of democracy, in favor of oligarchs and politically involved parties. Jean Tirole is right to be very, very worried about this, as he told the Financial Times. But you don't need a Nobel Prize to be worried. We must remember that the far right and certain cryptocurrency enthusiasts in the U.S. are closely linked. And obviously, they don't care about anything democratic, neither substantive nor even formal.
... In other words, stablecoins are shadow banking with new branding, oligarchy, and systemic risk. The path they have carved leads to bailouts for the rich, lost sovereignty, and a weakened democracy.
There are various people predicting yet another "crash." From the gambling around "artificial intelligence" companies to stablecoins, those who benefit from "creative destruction" are watching...
Z.S.
