The Politics of New Currencies

New currencies are often the target of politics. This not only applies to cryptocurrencies but also to past US currencies.

It may surprise some people that US currencies are not created by the US Treasury or the Federal Reserve but by the US Congress.

So, it has been the case that currencies have sometimes been created or manipulated not to solve economic problems but to solve political ones.

The prime example of this was the Treasury Coin Note (TCN)—a currency the Treasury did not want and tried to end as quickly as possible. In the 1880s, there was a glut in the silver market and prices were dropping. Lobbyists for the silver interests convinced Congress to pass a law, known as the Sherman Silver Purchase Act, forcing the US Treasury to buy silver every month—at least 4.5 million ounces. This extra silver would back a new currency, created by Congress, called the Treasury Coin Note.

The US Treasury saw no need for TCNs and the purchase of all that silver. Indeed, this infusion of silver into the monetary sphere dropped the price of gold, eventually leading to a run on gold held by the Treasury. Seeing the impending collapse of the US gold standard, Congress was convinced in 1893 to repeal the act, ending Treasury Coin Notes.

Right now, we are seeing monetary politics played out with stablecoins. And, what role will Congress play in the rollout of a US CBDC? What roll will lobbyists play?