American economist Paul Krugman, a Nobel Prize winner in 2008, recently shared his thoughts on stablecoins in a blog post titled ‘Digital Corruption Takes Over DC.’ In the post, Krugman expressed his belief that stablecoins have no practical utility, stating that they do not serve any clearly useful function. He argued that stablecoins cannot be used for ordinary purchases and that traditional payment methods such as debit cards, Venmo, Zelle, and wire transfers are more cost-effective and convenient alternatives.
Krugman also highlighted the anonymity feature associated with stablecoin deposits, which he believes is a valuable tool for individuals looking to engage in criminal activities such as money laundering, extortion, and the purchase of illegal drugs. He suggested that the only economic reason for using stablecoins is to facilitate illicit behavior.
Drawing parallels to the antebellum banks of the 19th century, Krugman likened stablecoin issuers to these private and unregulated banks that issued their own paper notes. He noted that just as antebellum bank notes were backed by gold and silver, stablecoins are backed by the claim that they are supported by dollars. Krugman warned that stablecoins pose new risks to overall financial stability, as a rush of users redeeming their stablecoins for U.S. dollars could lead to a “run on government debt” and threaten the economy’s stability.
Krugman also criticized lawmakers backing the GENIUS Act, a U.S. stablecoin bill, suggesting that some of these lawmakers have a vested interest in passing the legislation. He argued that campaign contributions and personal wealth may influence their understanding of the potential risks associated with stablecoins.
In response to Krugman’s views, Nic Carter, co-founder of Coin Metrics, and general partner at Castle Island Ventures, disagreed with Krugman’s assessment of stablecoins. Carter argued that the more than 100 million people who use stablecoins would disagree with Krugman’s claim that stablecoins lack utility. Paul “Teddy” Fusaro, president of Bitwise Asset Management, also criticized Krugman’s views, suggesting that calling him “remarkably misinformed” is a generous assessment.
Overall, Krugman’s views on stablecoins have sparked debate within the cryptocurrency community, with some experts challenging his assertions and defending the utility of stablecoins in the digital economy.