Private credit money accommodation is my theory of how private money becomes public money. Bank notes, bank deposits, and repos all started as private credit money and were taken under the state’s protection in crises. Stablecoins may be next. The state is a late adopter of money rather than its creator.
The common view holds that we live in an era of “fiat money” that the state issues by decree. My research suggests the opposite. Money is a hierarchy of promises to pay, and because issuing such promises is profitable, private institutions keep adding new layers beneath existing money. Accommodation unfolds in two phases. First, a new private money form grows until the economy depends on it. Second, it runs into a crisis, and the state rescues it under extreme time pressure. The rescue is meant to be temporary but becomes permanent, and the private money becomes part of the public money supply.
Three historical cases show the pattern. In England in 1797, the Privy Council released the Bank of England, then a private company, from paying gold for its notes, and they became inconvertible public money. In the United States in 1933, President Roosevelt closed every bank and backed the reopened ones, which turned bank deposits into publicly guaranteed money. In 2008, the Federal Reserve and the US Treasury stood behind repos and money market fund shares, the shadow money of Wall Street.
Accommodation of bank notes in 1797: Prime Minister William Pitt attacks the Bank of England (the Old Lady of Threadneedle Street). Image: wikipedia.org
Stablecoins may be the next case. They are private tokens that promise to hold par with the dollar or the euro, a new layer below bank deposits. They have already been rescued once, if indirectly: in March 2023, USD Coin regained its peg only after the state guaranteed the deposits of Silicon Valley Bank. With the GENIUS Act in the United States and MiCA in the European Union, regulators are now trying to set the terms of public backing before the next crisis rather than during it. My current work asks whether stablecoins are on the same path as the private monies before them, and what this means for how private money should be governed.
Key publications
- ‘The Political Economy of Private Credit Money Accommodation. A Study of Bank Notes, Bank Deposits and Shadow Money’, PhD thesis, City, University of London, 2017.
- ‘Shadow Money and the Public Money Supply. The Impact of the 2007–9 Financial Crisis on the Monetary System’, Review of International Political Economy, 2017 (EAEPE Kapp Prize).
- ‘What is Money in a Critical Macro-Finance Framework?’ (with Tobias Pforr), Finance and Society, 2020.
- ‘Private Debt as Shadow Money? Conceptual Criteria, Empirical Evaluation and Implications for Financial Stability’ (with Tobias Pforr), Private Debt Project, 2020.
- ‘Shadow Money in the History of Monetary Thought’ (with Tobias Pforr), Review of Political Economy, 2025.
All publications are listed under Publications.
