The rise of stablecoins is undoubtedly a great development in our monetary system. The key benefits of stablecoins being fast, low-cost, and peer-to-peer value transfer. Stablecoins are pegged to any given currency where the value of one stablecoin is equal to its equivalent in cash. Using the US dollar as the basis for this post, it seems that despite the modern origin of stablecoins, they might be a reintroduction of a radical monetary reform proposal known as the Chicago Plan. We will lightly cover the Chicago Plan's history and discuss how stablecoins may be effectively putting it into play.
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A Look at the Chicago Plan
During the 1930s, the USA experienced the Great Depression, which introduced large scale economic instability domestically and abroad. This naturally led to a re-evaluation of the existing financial system. Economists from the University of Chicago, Irving Fisher, Henry Simons, Frank Knight, deduced that fractional reserve banking largely contributed to economic instability, boom-bust cycles, and financial crises.
The Chicago Plan consisted of a multi-step process, which we won't go into on this blog post. At the core of the Chicago Plan was a move to 100% reserve banking. The result of this move would be to prevent banks from creating money from loans against demand deposits. In other words, they could not take your checking account deposits to make loans. If you deposit $100, they would need to keep $100 in their reserves to service your payments as needed. The immediate effect of 100% reserve banking is that it eliminates the danger of bank runs, which is beneficial to depositors and the banks (although begrudgingly).
Furthermore, money creation would be the sole responsibility of the central bank and/or government. The plan also expected to produce stabilization of the business cycle and reduction of public debt. The details of how this would occur a bit too technical for me to relate, and not necessary for this discussion.
The Chicago Plan was never fully implemented as there were political and practical challenges to putting it into effect. Key amongst these challenges is that it took away the ability of banks to print money.
Stablecoins: A De Facto 100% Reserve System?
Governments around the world have found themselves having to adapt to a world with cryptocurrencies. They have adopted a cautious approach in their legislation, particularly in regard to stablecoins, which require 100% reserves. For every stablecoin issued, there must be an equivalent amount of cash or highly liquid assets held in reserve. In other words, when a stablecoin is issued, the asset backing it cannot be lent out. This is effectively the same as requiring 100% reserves for checking accounts.
Stablecoin issuers do not create new money. They merely issue a token representing a dollar held in reserve. Of course, they reserves are not held entirely in cash. A large portion will be held in bonds or other investments that would produce yield for the stablecoin issuer. However, these reserves, being highly liquid, could be quickly sold should the stablecoin holder want to redeem their stablecoins for fiat. This backing reduces the danger of bank runs, which all fractional reserve banks have. Banks typically hold 10% or less of the cash that they have on deposit. If the fractional reserve banks were to all at once want their money, the banks would go bankrupt.
The Chicago Plan does not eliminate all bank risk, however. There are still the risks of bank mismanagement and fraud, for example.
The GENIUS Act of 2025 does not outright ban algorithmic stablecoins, which are issued from overcollateralized assets (for example, requiring 150% collateral deposits). However, the Act does mandate the study of algorithmic stablecoins by the US Treasury for future regulation. For the purposes of this blog post, we are focusing on fiat-backed stablecoins, which are currently the strongest collateral in terms of the Chicago Plan.
The Implications: Unintended Consequences or a Deliberate Path?
The benefits of an economic shift to stablecoins is the reduction of systemic risk. One would expect banks to continue to take risks. However, for the crypto space there would be less risk of bank runs or financial contagion when stablecoins have 100% reserves as required by law.
Stablecoins could also offer more transparency by providing auditable reserves, which the GENIUS Act of 2025 requires.
And stablecoins, although they are expected to be issued by banks in the coming years, disintermediates banks from being the source of cash in the financial system, which they largely accomplish via lending under a fractional reserve system.
There is some concern that stablecoins will tend to centralize money. However, passage of the GENIUS Act has many financial companies interested in issuing their own stablecoins. Consumers will have their pick of what stablecoins they will choose to spend, reducing the risk of centralization.
As we have not officially had an economy running on stablecoins, we still do not know what regulatory scrutiny governments will implement in the future. For now, we can only wait and see.
Where stablecoins differ from the Chicago Plan is that stablecoins do not create new money, they only tokenize existing money. The Chicago Plan, if implemented, would put full control over the money supply into the hands of the government rather than the banks, making reserve banks largely redundant.
The key to stablecoin success is largely reliant on 100% reserves, which are not always verifiable with certain stablecoins. The auditing function is extremely important in this regard.
We don't know for certain if stablecoin issuers had the Chicago Plan in mind. As far was we can tell, stablecoins were created to help crypto investors lock in gains on their exchange trading. It seems, from my limited knowledge, that the stablecoin parallel to the Chicago Plan is an unplanned emergent property of their design. In other words, we will have implemented the Chicago Plan by accident. Of course, this largely relies on consumers shifting most, if not all, transactions to stablecoin payments.
Conclusion: A Glimpse into the Future of Money?
If the world shifts their banking to stablecoins, it could very well implement the intended effects of the Chicago Plan as envisioned by its creators back in the 1930s. Stablecoins would have accomplished this organically and slowly, reducing any shock to the global financial system. There is a lot more detail I have left out about the Chicago Plan in this blog post, particularly the mechanics of how government would eliminate public debt and directly control the money supply. And I have not touched on how banks would be able to make loans. I invite you to research the Chicago Plan and explore the parallels between it and the rise of stablecoins, along with all the other technical details. These are undoubtedly interesting times in which we are witnessing a major shift in global finance.