Greg Ip argues that today’s stablecoins function as private money, reviving a practice the United States used in the 1800s. These crypto tokens pledge a one‑to‑one peg to the dollar, promising stability while operating outside the traditional banking system. Their rapid growth has drawn regulators’ attention, yet the core risk to the broader economy remains, and could undermine confidence in fiat.

In the 19th century, private banks issued notes that circulated alongside federal currency, creating parallel monetary channels. Modern stablecoins replicate that duality, offering users a digital alternative that skirts reserve requirements and supervisory oversight. Recent rulemaking seeks to impose disclosure and capital standards, but enforcement gaps leave investors exposed to redemption freezes and systemic contagion, and raise questions about monetary sovereignty.

For investors, the allure of a dollar‑linked crypto asset masks liquidity risk that can erupt during market stress, as seen in past stablecoin de‑pegs. Corporations holding these tokens on balance sheets may face sudden write‑downs, while banks with exposure could see capital strains. Regulators must close loopholes now, or the private‑money experiment will jeopardize financial stability. This risk is already reflected in tighter credit terms.