Monetary anchors in a digital age: A historical perspective on the ECB's digital euro and US stablecoins

This paper contributes to current debates surrounding the digital euro and US stablecoins by unpacking the present day relevance of two important episodes in monetary history: Prussia's effort in the 18th century to implement a uniform coinage standard across the Holy Roman Empire, and the 19th century Currency School Banking School debate. While the ECB presents the digital euro as a conservative measure designed to preserve the existing two tier system and the euro as a currency anchor, Prussia's failed reform efforts show that political will must be accompanied by political clout for a monetary standard to become widely accepted. Meanwhile, the US is promoting stablecoins backed by government debt in order to foster innovation and extend the dominance of the dollar. Based on a close reading of Hayek, this paper critiques currency competition as a justification for stablecoins. The risk of a fragmented monetary system no longer amenable to central bank control is also discussed with reference to the Currency School Banking School debate, which discloses the perennial importance of balancing stability with elasticity while alsoavoiding fragmentation. In this way Prussian and British historical experience with monetary system reform sheds valuable light on the parameters that policymakers should consider when devising or assessing proposals for digital money, as a failure could lead to uncertainty and the fragmentation of the monetary system or excessive rigidity in the money supply.