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Insights and Expertise

From colonial currencies to stablecoins:

Old lessons, new risks

By Ken Musante Just as merchants in the 1700s discounted paper from fis-
Napa Payments and Consulting cally weaker colonies, today's users may face costs when
transacting across incompatible stablecoin ecosystems. It's
n colonial America, fragmented currencies led to like trying to send money when one person uses Zelle and
widespread inefficiencies and distrust. Intercolonial the other Venmo: friction, fees and frustration.
trade was often cumbersome, and confidence in
I paper money varied. Before the U.S. Constitution In his June 27 article (see http://bit.ly/4nBPqNP), Jeff Can-
established a unified monetary policy in 1789, each colony gialosi argues that two types of stablecoins will emerge:
issued its own currency, while foreign coins continued to 1. Purpose-built stablecoins used for narrowly defined
circulate as legal tender until the Coinage Act of 1857. use cases like B2B settlement and issued by banking
consortia (similar to Zelle's origins).
From the New York Pound to the Georgia Pound, colonial 2. Payment tokens issued by fintechs like PayPal, Teth-
pounds circulated with varying degrees of trust. Typically,
they were accepted in neighboring colonies at a 5 to 10 er or Stripe, requiring careful evaluation of issuer cred-
ibility.
percent discount, though weaker issuers with poor fiscal
oversight saw discounts of 25 percent or more. It's this second class where we will need to differentiate
between the well capitalized, transparent issues and less
Fast-forward to today sound ones, the blue-chip versus chocolate-chip issuers.
We would be less likely to hold or accept stablecoins, even
Today, as the United States embraces stablecoins, the same if they were fully reserved, if we did not respect the issuer.
risks are resurfacing. On July 18, 2025, President Trump
signed into law the GENIUS Act, establishing the first What stablecoins can do for you
comprehensive federal framework for regulating stable-
coins. The law defines payment stablecoins as digital as- Rather than reinvent banking, stablecoins will find value
sets used for payment or settlement, pegged to a fixed in niche, high-cost use cases such as cross-border pay-
value and backed 1:1 by reserves. ments and instant, guaranteed payments. Without a sin-
gle, widely adopted standard, large companies will con-
Stablecoins offer efficiency; they can eliminate foreign tinue experimenting with proprietary ecosystems, many
exchange fees, provide instant settlement, and by main- of which will fail or be absorbed by bigger players.
taining price stability, avoid the volatility of cryptocur-
rencies like Bitcoin. Because they're issued on blockchain When stablecoins are exchanged within the same wallet,
networks, stablecoins also create a transparent, auditable and even across wallets, so long as the stablecoin is like for
record of transactions. like, the experience is frictionless, but when exchanged for
an alternate stablecoin or across non-connected platforms,
Old problems in a new form inefficiencies quickly appear.
The GENIUS Act does have gaps. With limited oversight, The opportunity for banks
competing federal and state guidance and no deposit in-
surance, the framework risks repeating the colonial ex- Despite limitations, stablecoins present an opportunity
perience: fragmented currencies, limited trust and ineffi- for banks. The 1:1 reserve model creates pools of escrowed
ciencies in exchange—this time, at hyper-speed. funds that earn guaranteed interest. Banks adopting sta-
blecoin services can attract sticky, loyal customer bases

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