75 Pages Posted: 18 Mar 2022 Last revised: 24 Feb 2023
Date Written: February 24, 2023
It is hard for private agents to produce money that circulates at par with no questions asked about its backing. Privately-produced money was last circulated in the U.S. before the Civil War as private banknotes. Stablecoins are new privately-produced money. Stablecoins are currently used to facilitate crypto trading. But could stablecoins eventually circulate as a hand-to-hand currency? We study pre-Civil War banknotes to determine what forces pushed these monies from a negative convenience yield to a positive convenience yield. We then ask whether the same forces affect stablecoins, pushing them toward positive convenience yields.
Keywords: money, convenience yield, stablecoins, privately-produced banknotes, cryptocurrencies
JEL Classification: E40, E51, G12, N21
Suggested Citation: Suggested Citation