Fractional Currency & Stablecoins

Pictured is a 3-Cent Fractional Currency Note from around 1864. This banknote is exceptional for two reasons: 1. it's the lowest value note ever issued by the US, 2. it's origin creates trouble for stablecoins.

Fractional currency was issued between 1862 and 1876. It was created shortly after the start of the US Civil War to deal with a shortage of fractional coinage. With the start of the Civil War, the silver fractional coin disappeared from circulation as the value of the silver content rose to exceed the face value of the coins.

As a replacement, people started using postage stamps. However, there was soon a shortage of postage stamps, and people started using all sorts of private notes as substitutes. Congress then authorized the printing of fractional banknotes to replace fractional coins and ease the postage stamp shortage. Fractional Currency was issued in denominations of 3, 5, 10, 15, 25, and 50 cents.

To stop the issuance of private fractional notes, which threatened the Government monopoly on coinage, Congress passed a law on July 17, 1862, that stated "no private corporation, banking association, firm, or individual shall make, issue, circulate, or pay any note, check, memorandum, token, or other obligation, for a less sum than one dollar, intended to circulate as money or to be received or used in lieu of lawful money of the United States." I believe that this law, meant to prevent any competition to the US currency, makes trouble for stablecoins.

A stablecoin that seeks to compete with US currency in retail payments and is denominated in US dollars will probably be illegal by this act. So, stablecoins need to be denominated in pseudo dollars and work in closed payment systems.