Before proceeding, one important boundary: throughout this essay, I refer exclusively to “payment stablecoins” as defined in the GENIUS Act — digital assets designed to be used as a means of payment or settlement, backed by safe liquid assets, redeemable for actual dollars, and explicitly designated by Congress as a means of payment. Other kinds of stablecoins or digital assets do not meet these legal conditions and are not under consideration here.
Starting with Mises
Like AAS, I begin with Von Mises’s definition of money:
“Money is a medium of exchange. It is the most marketable good which people acquire because they want to offer it in later acts of interpersonal exchange. Money is the thing which serves as the generally accepted and commonly used medium of exchange. This is its only function.” (Human Action, Scholars Edition, p. 398, italics added).
I take this to mean that if many — not necessarily all — people accept a thing as a medium of exchange, it qualifies as money. I also accept AAS’s account of how money evolved spontaneously in the marketplace rather than by legislative or royal decree, and I agree that in a free market, money would only be issued by a source trusted by its users.
I also note, parenthetically, that Mises’s earlier work, The Theory of Money and Credit, used the phrase “universally employed” rather than “commonly used.” The latter formulation in Human Action seems to set a more pragmatic and empirically realistic standard — one that is easier to satisfy and more consistent with the coexistence of multiple monetary instruments in the real economy.
The Mises Framework Applied to Modern Banking
Mises identified several categories of money within the banking system:
Standard money is a full and final means of payment. Formerly, standard money was gold. Now it is Federal Reserve notes and their electronic equivalents held by commercial banks at the Fed. (Added on 4/30: Standard money can also be called “cash.”)
Money substitutes are contractual claims to receive standard money (cash) on demand. They fall into two subcategories: covered money substitutes, which are backed one-for-one by standard money held in reserve, and fiduciary media, which are claims to standard money, but for which no corresponding cash reserve exists. Note that fiduciary media are commonly accepted as money even though no cash reserves exist to redeem them for standard money.
The “broad” money supply consists of circulating standard money (notes and coins) plus bank deposits, both covered and uncovered. Standard money in a bank vault or at the central bank is not part of the money supply because it is not being used in exchange; instead, it is represented by its circulating “covered” substitutes.
All of these instruments, though different from one another, are treated as money because they are accepted interchangeably and have equal value in commerce. It follows that if some new monetary instrument becomes commonly accepted as money, that new instrument should be counted in the total quantity of money.
Where I Disagree with AAS
AAS accurately describes the mechanics of purchasing a payment stablecoin. The Buyer writes a check to the Issuer and receives a token from the Issuer; the Issuer deposits the proceeds in his own bank and then uses that deposit to purchase a T-bill from a Third Party; the Third Party receives the bank deposit. So far, the traditional money – the bank deposit – has simply migrated from the Buyer to the Third Party.
Then AAS says that if the Buyer (the owner of the payment stablecoin token) wishes to “spend” his token, he must first cash it in for a bank deposit, which requires access to a bank, so he can receive a bank deposit, which he can then spend. AAS concludes that the token cannot itself be spent, so “There does not appear to be any new money created.”
I believe this conclusion is mistaken. On the contrary, payment stablecoins will appeal to large numbers of people precisely because they can be spent without cashing them in for a bank deposit and without needing to access a bank at all.
AAS’s argument would apply to a money market fund, where the buyer (investor) receives shares worth $1 each. A money market fund “feels” like money because it is highly liquid and maintains a stable value tied to the dollar, but you cannot spend money market shares directly. You must first liquidate them for a bank deposit, and only then can you spend the proceeds. Your bank makes this process appear seamless, but the intermediate step is real. So, when you buy shares in a money market fund, no new money is created. The fund receives your money, and you receive dollar-denominated shares that you can exchange for a bank deposit, which you can then spend.
Payment stablecoins are fundamentally different. Under the GENIUS Act, they are explicitly designated as a means of payment or settlement, which is, in substance, Mises’s definition of money. A buyer can pay any willing seller with a “payment stablecoin” token. The seller can accept and hold the token until he is ready to spend it on some other good or service. No liquidation step is required to spend the token. The token itself is the medium of exchange.
The legal privilege to create this new kind of money is similar to the commercial banks’ legal privilege to create bank deposits, which occurs when banks purchase bonds or make loans. To my knowledge, the GENIUS Act is the first to grant such legal privilege outside traditional bank licensing.
The payment stablecoin is analogous to a bank deposit, a form of fiduciary media, which is a tradeable claim to receive standard money (cash) on demand. Because of the bank deposit’s convertibility to cash, it is valued and traded on par with cash. Bank customers can confidently transact using bank deposits because both the banking network and government regulators guarantee fungibility.
Note that the payment stablecoin network, now codified in law, provides virtually the same guarantee as a bank deposit. Because the token issuer must redeem the payment stablecoin for a bank deposit on demand, and because the backing for such redemption consists almost entirely of US government short-term bonds (T-bills), payment stablecoin users will be confident they will not be left holding a worthless token. So, just as no liquidation step is required to spend a bank deposit, none will be required to spend a payment stablecoin token.
A payment stablecoin is a claim to receive a bank deposit. A bank deposit is a claim to receive standard money. All of these instruments can be exchanged for goods and services without converting them to another instrument. As long as payment stablecoins are commonly accepted in commerce, they will properly be classified as money.
AAS argues that money originally acquired its value spontaneously, from commodity barter, without government assistance, and that through the regression theorem, money’s value is passed on through time. I fully agree with this analysis. But, AAS further argues, payment stablecoin tokens lack any such intrinsic commodity-derived value: “Unlike money’s evolutionary origin, Tether tokens did not emerge organically as the most marketable commodity chosen by market participants over time.”
But I contend that payment stablecoins in this respect are no different from a modern-day bank deposit or a dollar bill. A paper dollar bill is also intrinsically worthless. The dollar’s value relies in part on its legacy from a better time, a time of sounder money. Given today’s monetary abuse, how much longer the dollar will be widely trusted is anyone’s guess. Be that as it may, the government’s calculation is clearly that the dollar’s reputation still has “legs.” Thus, they reason, a new government-blessed derivative of the dollar, the payment stablecoin, will be trusted and commonly used just as bank deposits and dollar bills are trusted and commonly used.
The main point here is that, to function as a commonly used medium of exchange, a monetary instrument need not trace a pure lineage back to the spontaneous origin of money. Would anyone seriously argue that the Euro, imposed by force on populations that did not want it, is not money?
An example of another spontaneous human institution might be informative. The social custom of marriage did not originate with the government but evolved into a beneficial institution because it promotes human well-being. However, over the years, the government has effectively taken over the institution of marriage, so it now has strong ties to government laws, not all of which relate to marriage’s original purpose. Marriage has been corrupted by government, yet it is still marriage. Similarly, money has been corrupted by the government, but it is still money.
Put another way, fiat money is lousy money, but if it is a commonly used medium of exchange, it is still money.
In any case, when and if the users of payment stablecoins start to routinely transact with these tokens – in other words, when and if these newfangled things become accepted as a medium of exchange – then they should be called money. Let’s now briefly examine why payment stablecoin tokens will become widely used and accepted.
Payment Stablecoins Will Be Popular
Payment stablecoins will come into widespread use because they are attractive to all parties involved –users, issuers, and the government.
From the user’s perspective, payment stablecoins are not primarily an American story. Americans already have an efficient, interest-bearing banking system that serves them well. The real opportunity lies elsewhere — among the vast population of dollar users worldwide who lack reliable, affordable access to the dollar-based banking system.
Consider a concrete example. A Turkish jeweler in Istanbul is selling a gold bracelet to a Brazilian tourist. The seller’s options are to accept payment in Brazilian Reais, Turkish Lira, or US dollars. Given the instability of the Real and the Lira, he prefers to receive dollars. At present, he can accept dollar payments in cash or by bank card. Physical cash (Federal Reserve notes) is risky and inconvenient for both buyer and seller. A bank card transaction will take 2 or 3% off the top of his selling price and might even be reversed before the payment reaches the seller’s bank, assuming our jeweler even has access to a bank that accepts dollar deposits.
But now he has a third, better option: a US dollar payment stablecoin. All that is required is that both he and the buyer have a smartphone app they downloaded for free, and that the buyer has loaded his app by purchasing some quantity of payment stablecoin. The payment is instantaneous, secure, final, and practically free. Compared to paper cash or a bank card, the payment stablecoin wins on every dimension.
This dynamic is precisely what Scott Bessent, the Secretary of the Treasury, described in a June 2025 interview, citing Nigeria as an example of a country where people can transact in dollars via payment stablecoins without needing US dollar bills or dollar bank accounts. The link to this interview is here. [See Bessent interview June 2025: watch 56:00 to 60:00.]
Empirical evidence to date shows that payment stablecoins are already popular for cross-border commerce, B2B payments, and transactions in emerging markets. Eventually, I expect payment stablecoins to compete with Eurodollars in overseas markets. This could be a major shakeup of the international monetary system. I plan to comment further on the progress of payment stablecoins, as well as their monetary and strategic advantages, in future essays and videos.
For issuers, the appeal of the business is clear: stablecoin issuers must keep the interest they earn by investing in T-bills, as they are legally prohibited from paying interest to token users. This will be such a lucrative business that I suspect regulators will eventually step in to limit issuers’ profits or reclaim some of the interest earned. Until then, issuers will compete heavily and push hard for widespread adoption.
Finally, why are payment stablecoins attractive to the US government? In a word, because our government is broke and needs new lenders. Treasury Secretary Scott Bessent has publicly stated that a thriving stablecoin ecosystem will increase private-sector demand for US Treasuries, lowering government borrowing costs. He has also described payment stablecoins as a strategic tool to reinforce dollar supremacy against foreign CBDCs and de-dollarization efforts. Because they are regulated by the Treasury Department, and because transactions on the stablecoin network can be made visible to law enforcement, stablecoins are unlikely to be used to launder illicit funds. If necessary, the Treasury can even deny their use as part of a sanctions program.
A New Way to Monetize Debt
Most importantly, payment stablecoins must be viewed as a government tool designed to “monetize” sovereign debt. Monetizing debt occurs when a government’s monetary authority replaces sovereign debt with new money. The Fed monetizes debt through open market purchases of Treasuries and does so on a large scale through its QE programs, creating both new cash reserves and new bank deposits. Commercial banks monetize debt directly by purchasing Treasuries, thereby creating new bank deposits, and are being encouraged to purchase even more by the recent loosening of bank liquidity rules.
And now, private stablecoin providers, selected by the government and anointed by the GENIUS Act, will monetize debt by issuing tokens and purchasing T-bills. The essential difference between this and a commercial bank’s purchase is that the newly created money will take the form of a novel stablecoin rather than a traditional bank deposit.
Quoting the eminent monetary economist Russell Napier:
“The growth in stablecoin creates money as it brings “moneyness” to that portion of the public debt that backs the new means of transaction. There are now three forms of the US dollar in circulation: 1. Notes and coins issued by the US Department of the Treasury. 2. Commercial bank deposits created by the US banking system… 3. Stablecoins privately created and backed by short-term US treasury securities, which are now very nearly as fungible as the two other forms of money.” – Russell Napier, Solid Ground, July 22, 2025
Thus, payment stablecoins – a new way for governments to print money – are manifestly and intrinsically inflationary. This should be of particular interest to AAS Economics, which is rightly concerned about the destruction wrought by excessive money creation.