The Holy Grail of Crypto Currencies: Ready to replace fiat money?

The rise of crypto currencies, notably bitcoin, fuels new and old debates about money. This paper discusses attempts of so-called stablecoins to complement or replace fiat money. In so doing, we first review today’s endogenous and debt-backed money. Second, we analyze how stablecoins try to overcome the inherent speculative and deflationary design of fixed supply coins like bitcoin. Some of the stablecoins’ underlying theories correctly state that economic and liquidity expansion go hand in hand. However, we find that these crypto currencies’ algorithmically planned allocation of new coins is inferior to today’s money creation because it is (i) not market-based, (ii) not backed by a We Owe You and (iii) using outdated monetarist theories in an attempt to control prices. We predict that crypto-monetarism will fail because quantity adjustments are not a sufficient condition for stable prices. Third, we show that, in the real world, firms set prices according to cost-based pricing rules, so that changes in unit labour costs correlate well with inflation. Once a path-dependent and institutional perspective on the labor market is taken, the importance of coordinated wage bargaining for price stability becomes evident. As a consequence, monetary policy of (crypto) currencies has to overcome the illusionary dichotomy between the real and the financial circuit. Instead, a comprehensive ap- proach combining fiscal, wage, foreign exchange and interest rate policies is needed.