Sovereign states have had a monopoly over the production of circulating currencies for well over a century. Governments, not private entities, issue circulating currencies. Indeed, in 1986, Milton Friedman and Anna Schwartz declared that “[t]he question of government monopoly of hand-to-hand currency is likely to remain a largely dead issue.” The advent of stablecoins—privately issued digital money that are pegged to fiat currencies like the U.S. dollar or the Euro—raises the question of the money monopoly from the grave.

Why did sovereign money monopolies come into existence in the 19th and 20th centuries? Should circulating private money coexist once again with sovereign money in the 21st century? This essay explores these fundamental questions of legal and financial architecture by revisiting the original legislative debates that led to the sovereign’s money monopoly in England, the United States, Canada, and Sweden. In every case, privately issued monies first circulated because of a limited money supply—a shortage of specie (i.e., metallic coins)—and then were ultimately banned to improve financial stability, gain greater control over monetary policy, or strengthen the sovereign’s fiscal position.

Today, lawmakers and regulators assume that coexistence between privately issued (digital) money and sovereign (digital) money is the optimal path forward and are crafting legal guardrails under that assumption. It is a very strong assumption—one that should be challenged since the upside is unclear and the costs remain similar. We argue that, if anything, the sovereign’s monopoly on circulating currencies should be protected.


Finance | Law and Economics

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