Paul Krugman denounces stablecoins as useless and dangerous, stating that they serve only to bypass regulations and facilitate criminal activities through anonymity.
The Attack of a Nobel Prize in Economics on Crypto
The Nobel Prize-winning economist Paul Krugman takes aim at the crypto industry. In a scathing post published at the end of May, ‘Digital Corruption Takes Over DC,’ the economist criticizes the increasing legitimacy of stablecoins in the United States, viewing them as a systemic threat and a preferred tool for criminal activities. As Congress prepares to adopt the GENIUS Act, which will regulate these digital assets, Krugman sounds the alarm.
Assets without Utility… except for Criminals?
According to Krugman, stablecoins ‘do not serve any clearly useful function.’ Contrary to the promises of their promoters, they offer no real advantage over traditional payment solutions like credit cards, Venmo, or wire transfers. His blunt explanation highlights their advantage: anonymity. Unlike traditional bank deposits, stablecoins allow funds to be transferred without revealing one’s identity. For Krugman, this is their only ‘economic asset,’ highly sought after for money laundering, drug purchases, extortion, or other illicit activities.
A New Form of Shadow Banking
Krugman goes further by likening stablecoin issuers to ‘wildcat banks,’ unregulated 19th-century banks whose notes circulated without real backing. To him, stablecoins represent a digital version of these institutions: private entities promising dollar parity without offering protection comparable to the traditional banking system.
This lack of oversight exposes them to the risk of a bank run. If stablecoin holders lose confidence and request mass redemption of their tokens, issuers would be forced to liquidate their reserves, often consisting of US government bonds, hastily. Such a scenario could trigger a sharp rise in interest rates, jeopardizing overall financial stability.
The GENIUS Act, or Legalization of Danger?
Hard to make someone understand something when their personal fortune depends on not understanding it.
Krugman sees the GENIUS Act as a dramatic step towards normalizing what he calls a ‘criminal enterprise.’ He denounces political and financial collusion, claiming that crypto companies accounted for nearly half of private companies’ expenses during the 2024 presidential election.
Facing this fierce criticism, figures in the ecosystem, like Nic Carter, decry a blatant misunderstanding. They remind that stablecoins enable millions worldwide to access monetary stability and financial inclusion.
But one thing is certain: as major US banks consider launching their own stablecoin, the debate is no longer just technological. It is now political, monetary…and explosive.
