Private Dollars: What Stablecoins Mean for the Monetary System
- Stablecoins are private companies issuing dollar claims that circulate as money — an arrangement the Bank for International Settlements says fails all three tests of what money must do.
- The March 2023 USDC rescue is the tell: the largest regulated dollar stablecoin recovered its peg only when US authorities backstopped a failed bank. Private dollars leaned on public money.
- US and EU rules push the same reserves in opposite directions — the GENIUS Act channels them into Treasury bills; MiCA channels them into bank deposits.
- Tether held about $141 billion of US Treasury exposure at the end of March 2026 — enough to sit between Saudi Arabia and South Korea on the Treasury's table of foreign holders. Real demand for US government debt, from a private company.
- For countries whose citizens hold dollars on a phone, stablecoins are a slow leak in monetary sovereignty: the central bank still sets rates, but for a shrinking share of the money actually being used.
Why does the BIS say stablecoins aren't money?
It applies three tests — singleness (a dollar is a dollar, whoever issued it), elasticity (the money supply can stretch to meet demand), and integrity (the system resists illicit use). Stablecoins fall short on all three: they are issuer-branded claims that trade at varying rates, they cannot lend money into existence, and they circulate as bearer instruments.
What was the significance of the March 2023 USDC depeg?
It showed the ceiling on private money. USDC's reserves existed but were trapped in Silicon Valley Bank; the peg came back only after a government rescue. A private dollar's credibility ultimately borrowed from public money.
Why does the US government want stablecoins to succeed?
Because the reserves have to go somewhere, and US law says that somewhere is short-dated Treasury bills. A growing stablecoin market is a growing, price-insensitive buyer of US government debt.
How much US debt do stablecoin issuers hold?
Tether alone held about $141 billion of Treasury exposure at the end of March 2026 — $117 billion of bills plus Treasury-backed repo — putting it in the same range as a mid-sized sovereign holder. Circle's reserves sit almost entirely in a Treasury money market fund.
Why do other governments worry?
A dollar stablecoin is a dollar that a foreign central bank cannot print, cannot control, and cannot see. If enough citizens hold savings in USDT, domestic monetary policy loses traction over the money that is actually being used.
Are stablecoins the only digital dollar?
No. Tokenized bank deposits and central bank digital currencies are competing designs — and the banks are pushing the first one hard, for reasons worth understanding.
A quick-read summary of the full article below.
In March 2023, the largest regulated dollar stablecoin in the world lost its peg. USD Coin fell to about 87 cents because $3.3 billion of its reserves were trapped inside Silicon Valley Bank, which had just failed, and it was a weekend, so nobody could get their money out. The reserves existed. They were simply unreachable — and a dollar you cannot reach is not worth a dollar.
What restored the peg is the part worth sitting with. US authorities invoked a systemic risk exception and guaranteed SVB's depositors. The private digital dollar was pulled back to par by a public backstop of a bank.
That is this article in one paragraph. Stablecoins are private money issued at serious scale, and the interesting questions are not about how they work — the companion piece covers that — but about what they do to the system they are borrowing from. Whether a company's dollar can really be a dollar. Where several hundred billion dollars of reserves end up, and who benefits from that. And what happens to a country whose citizens quietly decide to save in someone else's currency, on a phone, in an app.
A Nineteenth-Century Echo
If a private company issuing dollar-denominated notes backed by its own reserve pile sounds like something that has been tried before — it has. The Bank for International Settlements made precisely this point in its 2025 Annual Economic Report, and the comparison is worth sitting with: stablecoins, it noted, are "tagged with the name of the issuer, much like private banknotes circulating in the 19th century Free Banking era in the United States."
In that era, a note from one bank was not automatically worth the same as a note from another. You had to know the issuer. Notes traded at different prices depending on who had written them and how far you were from home — a Boston merchant would take a Boston bank's note at face value and a frontier bank's note at a discount, if at all. Newspapers published tables of who was worth what. The modern echo is exact: a dollar of USDT and a dollar of USDC are both nominally a dollar, but they are different companies' promises, and they trade at slightly different prices. As the BIS puts it, stablecoins "often trade at varying exchange rates," which undermines what economists call the singleness of money — the property that a dollar is a dollar, accepted at par with no questions asked, whoever issued it.
Singleness sounds abstract until you notice it is the thing you rely on every day without ever thinking about it. You do not ask which bank issued the money in your account before accepting a payment. That indifference is an achievement, not a natural state, and it took a central bank to build it.
The BIS judged stablecoins against three tests, and its verdict was blunt: they fall short on all of them. On singleness, they are issuer-branded claims that trade at varying rates rather than uniform money. On elasticity — the ability of the money supply to stretch to meet demand — they are hobbled by design, because every new token requires full payment upfront, what the BIS calls a "cash-in-advance constraint." A commercial bank can lend money into existence: it writes a loan and creates a deposit, and the money supply grows to meet demand. A stablecoin issuer cannot. On integrity, their bearer nature lets them circulate without issuer oversight, which has made them attractive for illicit use.
This is a serious institution's serious critique, and it deserves to be presented as such rather than waved away. It is also worth noting what it is not saying: not that stablecoins are useless, but that they are poorly suited to being the foundation of a monetary system. Those are different claims, and the distinction matters, because the evidence for the first is thin and the evidence for the second is the whole of nineteenth-century American monetary history.
