The Green Sheet Online Edition
September 22, 2025 • 25:09:02
From colonial currencies to stablecoins: Old lessons, new risks
In colonial America, fragmented currencies led to widespread inefficiencies and distrust. Intercolonial trade was often cumbersome, and confidence in paper money varied. Before the U.S. Constitution established a unified monetary policy in 1789, each colony issued its own currency, while foreign coins continued to circulate as legal tender until the Coinage Act of 1857.
From the New York Pound to the Georgia Pound, colonial pounds circulated with varying degrees of trust. Typically, they were accepted in neighboring colonies at a 5 to 10 percent discount, though weaker issuers with poor fiscal oversight saw discounts of 25 percent or more.
Fast-forward to today
Today, as the United States embraces stablecoins, the same risks are resurfacing. On July 18, 2025, President Trump signed into law the GENIUS Act, establishing the first comprehensive federal framework for regulating stablecoins. The law defines payment stablecoins as digital assets used for payment or settlement, pegged to a fixed value and backed 1:1 by reserves.
Stablecoins offer efficiency; they can eliminate foreign exchange fees, provide instant settlement, and by maintaining price stability, avoid the volatility of cryptocurrencies like Bitcoin. Because they're issued on blockchain networks, stablecoins also create a transparent, auditable record of transactions.
Old problems in a new form
The GENIUS Act does have gaps. With limited oversight, competing federal and state guidance and no deposit insurance, the framework risks repeating the colonial experience: fragmented currencies, limited trust and inefficiencies in exchange—this time, at hyper-speed.
Just as merchants in the 1700s discounted paper from fiscally weaker colonies, today's users may face costs when transacting across incompatible stablecoin ecosystems. It's like trying to send money when one person uses Zelle and the other Venmo: friction, fees and frustration. In his June 27 article (see bit.ly/4nBPqNP), Jeff Cangialosi argues that two types of stablecoins will emerge:
- Purpose-built stablecoins used for narrowly defined use cases like B2B settlement and issued by banking consortia (similar to Zelle's origins).
- Payment tokens issued by fintechs like PayPal, Tether or Stripe, requiring careful evaluation of issuer credibility.
It's this second class where we will need to differentiate between the well capitalized, transparent issues and less sound ones, the blue-chip versus chocolate-chip issuers. We would be less likely to hold or accept stablecoins, even if they were fully reserved, if we did not respect the issuer.
What stablecoins can do for you
Rather than reinvent banking, stablecoins will find value in niche, high-cost use cases such as cross-border payments and instant, guaranteed payments. Without a single, widely adopted standard, large companies will continue experimenting with proprietary ecosystems, many of which will fail or be absorbed by bigger players.
When stablecoins are exchanged within the same wallet, and even across wallets, so long as the stablecoin is like for like, the experience is frictionless, but when exchanged for an alternate stablecoin or across non-connected platforms, inefficiencies quickly appear.
The opportunity for banks
Despite limitations, stablecoins present an opportunity for banks. The 1:1 reserve model creates pools of escrowed funds that earn guaranteed interest. Banks adopting stablecoin services can attract sticky, loyal customer bases while tapping into new revenue streams. Going back to Jeff Cangialosi's narrow use model, some banks may specialize in cross-boarder settlement and specifically cater to businesses with that need. Others may try to leverage the escrowed funds, and while the GENIUS Act prevents interest from being paid on stablecoins, some could innovatively reward customers in proportion to their stablecoins.
Recent SEC guidance strengthens this opportunity. As reported by The Block, SEC guidance allows USD-pegged stablecoins with guaranteed redemption mechanisms to be classified as cash equivalents on balance sheets (see bit.ly/4gvqEN7). This places them on par with cash, rather than securities, making them far more attractive for CFOs and borrowers.
The history of colonial currencies reminds us what happens when multiple issuers compete without unifying rules: fragmentation, inefficiency and loss of trust. Stablecoins may serve as a useful transitional tool, but without broader interoperability and consistent regulation, their proponents risk repeating old mistakes.
If thoughtfully integrated, however, stablecoins could become a limited but powerful tool, bridging gaps in settlement, reducing costs and offering banks new opportunities, all while reminding us that financial stability depends on innovation delivered by a trusted source. 
As founder of Humboldt Merchant Services, co-founder of Eureka Payments, and a former executive for such payments innovators as WePay, a division of JPMorgan Chase, Ken Musante has experience in all aspects of successful ISO building. He currently provides consulting services and expert witness testimony as founder of Napa Payments and Consulting, www.napapaymentsandconsulting.com. Contact him at kenm@napapaymentsandconsulting.com, 707-601-7656 or www.linkedin.com/in/ken-musante-us.
Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.
