Money, in essence, is a legal construct. In the U.S., most of the money supply is composed of monetary liabilities – promises from commercial banks and money market funds, secured by robust regulations. These regulations give these institutions a significant advantage, turning potentially risky claims into dependable “safe assets”—good money. However, the financial landscape is changing, with a surge in new financial institutions like PayPal and stablecoin issuers such as the Libra Association, all seeking to operate outside traditional banking regulations.
These emerging institutions often exist within a fragmented and outdated state regulatory framework, which this paper examines. These frameworks are inconsistent and often fail to ensure the reliability of the monetary liabilities these new institutions issue. In short, they are issuing what can be termed “Bad Money.” To address this, the paper proposes a National Money Act. This act aims to modernize and standardize regulations for these novel institutions, fostering a more equitable and secure financial environment for the digital age.
