American economist Paul Krugman, who won the Nobel Prize in 2008, believes that Stubcoin has no practical utility. In a May 30 blog post entitled “Digital Corruption Takes DC,” Krugman said, “Stablecoins clearly do not provide useful features,” adding:
“They (stablecoins) can’t be used to make regular purchases. There’s nothing cheaper and easier to do, like debit cards, benmo, zel, wire transfers.”
Therefore, Krugman questioned why, instead of using “dollar-backed” tokens, not just anyone would use US dollars.
According to Krugman, Stablecoins offers one feature that traditional payment modes are not anonymous. He writes that anonymity associated with Stablecoin Deposits is a “valuable trait” for villains trying to commit crimes, from money laundering and fear to buying illegal drugs.
“In other words, the only economic reason for stable rock is to promote criminal activity.”
Krugman calls the Teched-Up version of the Stablecoin publisher’s Antebellum Banks
In 1861, the US federal government printed paper currency for the first time to fund the civil war. Before that, gold and silver were the only official forms of money.
Before the federal government began printing paper currency, several private and unregulated banks, called Tebellum Banks, issued their own paper memos to facilitate daily transactions. Users can exchange these Civil War Bank notes for gold or silver at any time. However, according to Krugman, most of these front-end banks were “Wildcat Banks” set up with the sole purpose of fraudulent users, leading to the devastating bank operation in the 1930s.
According to Krugman, Stablecoins are a modern version of Antebellum Notes, and the only difference is that these currencies served their purpose. Thus, Krugman compares a ridiculous issuer to the banks of the Civil War Corps of the 19th century. He wrote:
“So, like the notes from Antebellum Bank, a privately issued currency backed by the claims that it is supported by gold and silver, stubcoins are privately issued tokens supported by the claim that they are supported by dollars.”
He goes on to write that “Stablecoins are “a new kind of shadow bank,” which states that the 2008 financial crisis “avoided preventive regulations” through “shadowbanks.”
Krugman says supporters of genius behaviour have vested interests
Krugman said lawmakers supporting the US Stablecoin Bill, known as the Genius Act, have a vested interest in passing legislation. According to him, some of these lawmakers probably “recognized” how stubcoin promotes crime. But he added:
“…It’s difficult to get someone to understand something when campaign contributions, or in some cases, when individual wealth is dependent on something they don’t understand.”
The issuer of Stablecoin has repeatedly attempted to assure users that the token was primarily supported by the US Treasury bill. However, Krugman explained that the practice poses a major risk to the US economy.
This is because, like bank operations, there is a rush of users trying to redeem stable coins in USD at the same time, forcing the issuer to “fire sales” of the Treasury bill. This will raise interest rates and turn them into “operations against government debt,” threatening the financial stability of the entire economy. He pointed out:
“The fundamental point is that the growth and justification of stubcoin poses new risks to overall financial stability. All in the name of making business easier for criminals.”
He concluded that consideration of the act of genius indicates that Washington, D.C. has been transformed into a town that “at least largely purchased and paid for, if not entirely controlled by the digital mob.”
Coin Metrics co-founders call Krugman “Misunformed”
Nic Carter, co-founder of Blockchain Data Aggregator Coin Metric and general partner at Castle Island Ventures, a cryptographic and blockchain-centric venture capital firm, believes Krugman’s views on Stablecoins are incorrect. In a Sunday post on X, he wrote:
“To the Victory Economist of Nobel, he (Krugman) is given a significant misinformation about the subject. ”
Carter pointed out that more than 100 million people who use stubcoin “different” and “begged” from Krugman’s claim that Starbrecoin has no utility.
Carter wasn’t alone just criticising Krugman’s claims. In response to Carter’s post, Paul “Teddy” Fusaro, president of Crypto Asset Manager Bitwise Asset Management, said calling Krugman “very misinformation” was “very generous” on Carter’s part.