Living on the fringes of Silicon Valley and writing about the gold standard, I have the dubious privilege to be invited to lunch, from time to time, by ambitious young entrepreneurs with plans for a “stablecoin,” meaning a cryptocurrency pegged one-to-one to the dollar. I wasn’t so invited by the backers of Libra, Facebook’s newly announced stablecoin. But I still suffered a familiar case of indigestion.
Mercifully, Facebook avoided the idea that a stablecoin will free us from the tyranny of the Federal Reserve. Typically, stablecoin purveyors invoke a mythical past in which the monetary unit of account was free of government manipulation and backed by tangible assets, such as gold in the 19th century.
But as any historian will tell you, the 19th-century gold standard never operated this way. Governments were always involved. The gold backing of national monies was at most partial. Still, these simple facts don’t prevent the libertarian advocates of stablecoins from abusing the analogy.