The Royal Bank of Scotland, for example, would attempt to gather up as much of the outstanding note issue as possible from its rival, the Bank of Scotland. The bank hired people called “note pickers” to collect the rival’s notes, some of whom might even offer a little reward to individuals who would exchange their Bank of Scotland notes for the Royal Bank’s notes. The note pickers would then simultaneously converge upon the Bank of Scotland and demand: “redeem these notes as you promised, give us the gold now.” Because of this market mechanism – which could be thought of as runs on a bank – these banks, which were moving toward a fractional reserve system, could not reduce their reserves by too much (because of the threat of a redemption attack by their rivals). This mechanism was used by both large and small banks. Competitive rivalry thus had the salubrious effect of forcing rivals to maintain reasonable reserve ratios. And this important aspect of market discipline emerged naturally.

Stablecoins are much more comparable to money market mutual funds, and even within that cohort, they are on the more secure side.

In this case the history is a red herring because the issues are different, the assets are different, the analogies that we have been offered are unreliable both because the old stuff has been misrepresented, and because the new stuff is much more heterogeneous than it has been presented to be. Trying to make stablecoins fit into wildcat or antebellum free banking as an analog – or money market funds for that matter – is not a good way to proceed. These things should be examined on their current merits.