The US Is Repeating Lincoln’s 1863 Banking Revolution With Crypto

The United States is doing with crypto today what Abraham Lincoln did in 1863 with paper money.

The Office of the Comptroller of the Currency (OCC), the agency responsible for supervising US banks, has finalized the first part of its stablecoin rules. US Treasury Secretary Scott Bessent has compared the stablecoin legislation to Lincoln’s landmark 1863 banking law.

Before Lincoln’s law, more than 1,600 banks in the United States issued their own money. Today, companies are creating their own stablecoins pegged to the US dollar. The United States brought those paper currencies under a common regulatory framework in three steps. The stablecoin legislation follows the same three-part approach. Bessent has referred to only one of those steps so far.

Estimates suggest that before 1863, the United States had more than 10,000 different types of paper money in circulation. A banknote issued in one state could be accepted at a discount in another, or rejected altogether.

Each of these notes was essentially a promise signed by the issuing bank. Anyone holding one could take it to that bank and exchange it for gold or silver. But banks frequently issued more notes than their reserves of precious metals could cover, and many eventually collapsed.

When a bank failed, the people holding its notes were left with the losses.

The stablecoin in your digital wallet represents a similar kind of promise. Its issuer commits to redeeming each token for one US dollar.

Step One: Establishing a Common Set of Rules

Lincoln’s legislation created a system of national banks chartered by the federal government, along with the OCC to supervise them. The banknotes issued by these institutions shared a standardized appearance, with only the bank’s name and its officials’ signatures distinguishing one from another.

This is the step Bessent was referring to. The US stablecoin law, known as the GENIUS Act, applies a similar principle to stablecoin issuers.

Companies seeking to issue stablecoins in the United States must obtain authorization, and the rules are scheduled to take effect on January 18, 2027.

Step Two: Backing the Promise With Collateral

National banks were required to purchase US government bonds and deposit them with the OCC before issuing banknotes. If a bank failed, those bonds could be sold to compensate the people holding its notes.

At the time, the United States was in the middle of the Civil War. One objective of the legislation was to encourage banks to buy government debt, helping the federal government finance the war.

Under the GENIUS Act, stablecoins can be backed by cash, bank deposits or short-term US government debt in the form of Treasury bills.

Step Three: Squeezing Out Competing Currencies

The third step targeted money issued by banks that were not part of the national banking system.

The 1863 law did not prohibit state-chartered banks from continuing to issue their own notes. In March 1865, however, the federal government imposed a 10% tax on banknotes issued by those institutions.

Following the tax, hundreds of state banks converted into national banks, and privately issued state banknotes rapidly declined.

For stablecoins, the equivalent measure is not a tax but a deadline.

Beginning July 18, 2028, crypto platforms selling stablecoins to customers in the United States will be permitted to offer only tokens issued by authorized entities.

Tether, the company behind USDT, the world’s largest stablecoin by market capitalization, has taken a path resembling that of the state banks in the 1860s.

In January this year, Tether launched USAT, a separate stablecoin designed for the US market. USAT is issued by a bank licensed in the United States.

In 1863, banks issued the money. Today, companies issue it. In both cases, the United States has written the rules.

Lincoln’s legislation helped establish a uniform national currency. Today, stablecoins are extending the reach of the dollar across the internet.

It does not matter who issues the money; the country that writes the rules holds the advantage.

British economist Walter Bagehot wrote in 1873:

“Money does not manage itself.”

In 1863, the United States entrusted the OCC with overseeing paper currency issued under the national banking system. Today, the same agency is taking on a role in the regulation of stablecoins.