The quality of currency depends on the credit of the issuer.

Article Author:Thejaswini M A

Article Compilation：Block unicorn

In 1840, a shopkeeper kept an ledger under the counter. When you paid with paper money, he would take out the ledger to check how much your money was worth that day.

The ten-dollar note issued by the Bank of Cincinnati was not worth ten dollars everywhere. It might only be worth nine dollars.

The ten-dollar note issued by the Bank of Cincinnati was not worth ten dollars everywhere. It might only be worth nine dollars.

Its value can vary greatly. If a bank fails and the news hasn't reached his county yet, it might even be worthless. The most famous of these books comes from Philadelphia and is called *The Bicknell Counterfeit Detector*. It's actually a currency price list, printed sequentially because the value of a dollar varies depending on the name printed on the banknote. [Source: Library of Congress; a print of a $25 banknote featuring a bust of George Washington.] This was the United States between 1837 and 1863. Any bank with a state charter could print its own banknotes, and obtaining such a charter was relatively easy. Michigan pioneered this in 1837, opening a bank with virtually no requirements and without legislative approval. Thousands of different banknotes circulated simultaneously across the country. Of the banknotes in circulation, about a third were outright counterfeit. Each banknote represented a gamble on the issuing bank. This system collapsed during the Civil War, when the government printed a uniform dollar, partly to raise funds for the war, but more importantly, because trust in eight thousand privately issued banknotes had drained the nation's coffers. On June 22, the Senate passed the 21st Century Housing Route Act by an overwhelming majority (85 votes in favor, 5 against), and the House of Representatives passed it the following day. Hidden within this housing bill is a clause prohibiting the Federal Reserve from issuing a central bank digital currency (CBDC) before 2030. This is why we need to look back and unravel the specter of the era of free banking. The dollar balance in your Venmo account is guaranteed by the bank; if that bank fails, your money is at risk beyond the coverage of the Federal Deposit Insurance Corporation (FDIC). A central bank digital currency (CBDC), however, bypasses banks, allowing holders to hold national currency directly in digital form. The Senate rejected the proposal for two reasons. First, a government-issued digital dollar could track every penny you spend and, like China's digital yuan, could freeze your wallet at any time. Second, banks strongly opposed it because funds held directly in the Federal Reserve would never enter their deposit accounts. They would lose the floating capital they depend on. Now, even the person who was supposed to sign the bill seems uncertain about what he is about to sign. On June 24, just an hour before the signing ceremony was scheduled to begin, Trump canceled the ceremony and demanded the passage of a voter identification bill that the Senate had already rejected. But this ban is likely to eventually become law. Okay, the government won't issue a digital dollar. But at the same time, it's handing the job over to private companies. This means the old path of 1840 is back. Even after the GENIUS Act is signed into law in July 2025, the current regulatory focus remains primarily on the quality of reserves, rather than strict entry barriers. A dozen companies are lining up to apply for licenses to issue their own dollars. Every fintech company wants its own branded currency. The current market size is approximately $312 billion. Tether's USDT and Circle's USDC account for about 80% of that. In addition, there's PayPal's PYUSD, Ripple's RLUSD, and Paxos' white-label tokens minted for anyone who needs them. They all echo the Cincinnati Bank's claim: Trust us, they're guaranteed. This isn't 1840, and Jim Carrey is still trying to prove he's not his own clone. We don't trust anything, do we? That's both a good thing and a bad thing. It's this distrust that prompts issuers to provide evidence of their reliability, while also allowing them to rely on the market to remain superficial, because a group of people who are skeptical of everything but never verify any facts are precisely the group you're most likely to hand over your money to. An illicit bank claims its banknotes are backed by silver in a vault. But this so-called vault is often just a barrel of nails hidden deep in the woods, inaccessible to any inspector. Stablecoins, on the other hand, are backed by US Treasury bonds and issue monthly receipts. There's a significant difference in collateral between the two, with stablecoins having a clear advantage. Leaving aside the issue of collateral, a further question arises. One dollar equals one dollar because everyone agrees on three things: the issuer has confidence in the money; the reserves are real and usable; and if things get out of control, someone will intervene. Taking all three into account, one dollar is one dollar, and you don't need to think about it anymore. When one of the three factors fluctuates, the currency is priced individually by the issuer, just like in 1840. That's how money works. Even checking accounts work the same way. The government guarantees all three, so you don't see it. Stablecoins are different; you can clearly see how the machine works. Tether is the world's largest issuer of USDC and also the least transparent. Its reserve reports have been questioned for years. In 2021, Tether reached a settlement with the New York State Attorney General, admitting that its reserves were not always as ample as it claimed. It had lent billions of dollars of reserves to affiliated companies. Circle was considered a "good guy" and was favored by regulators. It was audited monthly and went public in 2025. However, what happened in March 2023? When Silicon Valley Bank (SVB) collapsed, Circle held $3.3 billion in USDC reserves at SVB. Before the government intervened to guarantee the SVB deposits, USDC briefly fell to 87 cents over the weekend. Ample reserves, yet a dollar was worth only 87 cents in just 60 hours. This was because people no longer believed USDC was redeemable. Today, every company in the payments sector wants its own dollar. PayPal has PYUSD, Ripple has RLUSD, there's USDG operated by a consortium, and a series of bank tokens launched by companies like JPMorgan Chase and Western Union. In December 2025, the Office of the Comptroller of the Currency (OCC) issued trust banking licenses to Circle, Paxos, and three other cryptocurrency companies, prompting other companies to follow suit. Rejected, Tether issued a separate US token called USAT in an attempt to re-enter the market. However, it's crucial to read the terms carefully. These are "trust banking" licenses, not insurance banking licenses. The Federal Reserve provides them with very limited account functionality, no overdraft limits, and no access to the emergency lending window—which is crucial for saving banks in the event of a run. And those who pay for your tickets are their record labels. Paxos, the company that issues PYUSD and six other branded tokens, was ordered by New York regulators to stop issuing Binance's stablecoin back in 2023. Some of the newer tokens don't even have cash backing. Ethena's USDe relies on derivatives trading strategies to maintain its peg. The law prohibits these issuers from paying you interest, so they find ways to circumvent it. Coinbase pays "rewards" for USDC. PayPal offers a 3.7% yield on PYUSD. These attractive yields lure your funds. Unlike a regular bank account protected by the Federal Deposit Insurance Corporation (FDIC), these funds have no security. Because stablecoin tokens are backed by US Treasury bonds, the money supply remains determined by Washington. The interest from these bonds ultimately flows to the issuer. Tether has approximately 100 employees and is projected to generate around $10 billion in profits by 2025; its holdings of US Treasury bonds even exceed those of Germany. However, if things go wrong, you bear all the losses. A run is like everyone rushing through a door that was originally only allowed to trickle through. The redemption channels for stablecoins are extremely narrow. Most people simply cannot redeem their tokens in Tether. They can only sell their Tether to a small number of arbitrageurs, and Tether only has about six arbitrageurs on average each month, with a minimum redemption amount of $100,000 from the source. If Tether were to collapse tomorrow, the price of its 100 billion tokens would plummet to zero. Tether holds so much Treasury bonds that a panic sell-off would shake the Treasury market itself. Washington intervened because the alternative was a coordinated credit and liquidity freeze. Moreover, the government doesn't even need a global economic collapse to do this. In 1971, the government rescued Lockheed with a $250 million loan guarantee in a deadlock-breaking vote, saving 60,000 jobs and the Pentagon's largest supplier. One admiral who witnessed it called it "a new idea: privatize profits, socialize losses." In 1970, when the Pennsylvania Central Railroad, the largest railroad company in the United States, went bankrupt, the government allowed it to go bankrupt and then spent public funds to build the Conrere Railroad to take over its tracks because trains had to continue running. A dollar-denominated token used by 250 million people easily fulfilled this requirement. For a long time, governments have refused to guarantee private risks until those risks threaten the stability of public infrastructure. There are many ways to solve this problem. What if, instead of potentially failing banks like Silicon Valley Bank (SVB), issuers' reserves were instead deposited directly with the Federal Reserve? The risk of a bank run would be greatly reduced because the Federal Reserve is not as vulnerable as regional banks. Alternatively, issuers could purchase genuine deposit insurance, thus paying the premiums before a crisis erupts. The government could try taxing Treasury yields and returning the profits to the public who bore the risk. But we certainly don't like any of that, right? The Federal Reserve's reserves mean the Fed is now the last line of defense. Insurance means a government agency is guaranteeing it, like the Federal Deposit Insurance Corporation (FDIC) pressuring the Treasury in dire situations. Taxing the yields means treating these companies as public utilities. We don't want the government to re-enter the monetary arena. That's why central bank digital currencies (CBDCs) were banned in the first place. Let's go back to human history. Around 375 BC, in the marketplace of Athens, the city employed a slave to sit at the banker's table and authenticate silverware. He would cut counterfeit gilded coins in half and return the genuine ones to the customer. He would even spare foreign silver coins imitating Athenian owls, as long as the silver was pure silver. There was even a law at the time requiring all merchants to accept silverware that he had authenticated. Two thousand four hundred years have passed; have we truly reached our destination? Reassuringly, major changes always come with loopholes, and these loopholes are gradually filled over time. Perhaps in another ten years, reserves will be more abundant, and the rules more effective. But what you need to pay attention to are the trade-offs involved. Think about what you'd give up. Right now, your dollars are protected by the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve can print money to deal with panic. While slower, it's one of the most reliable assets you can hold. Banks lend it out the day it's issued. The Federal Reserve lowered the reserve requirement ratio to zero in 2020, so by law, your banks don't have to hold a single penny of your deposits. What truly supports you is the FDIC's insurance, which holds approximately $154 billion to insure deposits nationwide. Simply put, for every dollar of protection, there's about 1.5 cents in reserve. Even so, it still can't handle a synchronized systemic panic. If that fund runs out, the FDIC must immediately activate its standby credit line at the U.S. Treasury or coordinate with the Federal Reserve to print money to release emergency liquidity. Within a single month in 2023, three of the largest bank failures in U.S. history occurred in quick succession: Silicon Valley Bank, Signature Bank, and First Republic Bank. To prevent a run on the banks, regulators breached the $250,000 deposit insurance cap, fully compensating all non-depositors—a move mirroring their later emergency measures for stablecoins. This resulted in a loss of approximately $20 billion for the fund. Stablecoins are inexpensive and offer fast transaction speeds. They are available 24/7, with reserves stored in on-chain, verifiable vaults, and the best issuers publish monthly receipts—far more information about deposit destinations than banks disclose. Would you exchange the first for the second? I would do so without hesitation. Perhaps you would too. Having read this article, you are already in the thick of it; you know what de-pegging is and where to begin. But the real challenge lies with the average person. This person uses USDC to receive payments because it's the easiest form of US dollar they can hold. And this store accepts PYUSD because the fees are lower. Most people never understand the risks behind such a simple system. After all, convenience spreads much faster than understanding. The value of your money depends on the creditworthiness of the issuing institution, which in turn depends on the creditworthiness of the country that guarantees it.