What is currency?

In July 1944, as World War II was coming to an end, representatives from over 40 countries gathered in a small town in New Hampshire, attempting to answer a seemingly simple question: What is currency, and who controls it? The Bretton Woods Conference was not the first time global leaders had discussed this issue, nor would it be the last.

The debate about gold, the US dollar, and exchange rates has constructed the framework of the modern global financial system. For thousands of years, every major monetary change has revolved around a core question: Where does the value of currency come from?

The debate about the value of currency often involves its sovereignty and scarcity. Each currency reform is less about the physical form of the currency and more about trust, power, and the rules of the game. Stablecoins are the latest manifestation of this round of reform, where trust and power seem to be decentralized.

We believe that stablecoins are the most influential form of currency. The earliest known forms of commodity money are items like gold, silver, shells, and salt. These items were used because of their intrinsic or widely recognized value, which stems from their physical scarcity.

For example, the supply of gold is limited and needs to be mined, a process that is both difficult and expensive. Scarcity creates credibility. If you hold a coin, you can trust it is a good "store of value" because no government or unscrupulous banker can create more gold out of thin air. In Micronesia's Yap Island, currency exists in the form of large limestone discs, some weighing several tons, mined from Palau, with their value depending on size, transportation difficulty, and origin.

Because ownership is tracked through community consensus rather than physical movement, these stones indicate that the power of currency comes from shared belief rather than intrinsic value. However, this form also brings limitations. Commodity money is cumbersome, difficult to transport, and inefficient in a rapidly growing global economy.

These physical constraints hinder payment throughput and suppress economic growth. Long-distance trade requires a system that can transcend the limitations of metal weight and capital. The transition to fiat currency ultimately pushed commodity money to its limits with the combination of globalization and industrialization. Government intervention introduced fiat currency.

Initially, paper money, which could be exchanged for gold or silver, gradually became widely accepted as currency itself. The Bretton Woods system established this ecosystem by linking the dollar to gold and tying other world currencies to the dollar.

This arrangement lasted for about 25 years. However, by the late 1960s, the United States' gold reserves could no longer support the global dominance of the dollar.

In 1971, President Nixon suspended the dollar's convertibility into gold, marking the beginning of the pure fiat (no physical backing) era. In the next phase of currency, value comes from sovereign credibility rather than material scarcity. The dollar has value because the U.S. government says so, and markets, households, and foreign governments believe it.

Trust has shifted from a physical foundation to a political and policy foundation. This profound change provides countries with powerful tools. Monetary policy has become a core lever of economic management and geopolitical strategy.

However, fiat currency also brings vulnerabilities such as inflation, currency wars, and capital controls. On certain levels, flexibility and stability are opposing forces.

Today, the core issue surrounding the structure of modern currency is not who can create currency, but whether we can trust those in power to maintain the value and utility of the currency in the long term.

The digitalization of currency presents an important issue at the intersection of electrical engineering and finance brought about by the rise of computers and the consumer internet: Can currency be represented in digital form as bits in the digital world? In the 1990s and early 2000s, projects like Mondex, Digicash, and eGold attempted to answer this question, promising new electronic payment and value storage methods.

Ultimately, they failed due to regulatory pressure, technological flaws, and a lack of trust and market adaptability. Meanwhile, electronic banking, credit cards, payment networks, and settlement systems became commonplace.

Importantly, these are not new assets, but rather new representations of fiat currencies, forms that are more scalable and suitable for the modern world. However, they are still subject to the same institutional trust and policy frameworks, and crucially, they rely on closed technological systems and operational networks that are operated by rent-seeking intermediary institutions.

Stablecoins leverage this dynamic but shift power from companies by utilizing open, permissionless infrastructure. Legally backed stablecoins are inherently hybrid. They inherit the credibility and efficiency attributes of fiat currencies while harnessing programmability and global accessibility.

Link stablecoins to reserves that can be redeemed at par, leveraging the credibility of sovereign nations like the United States to make the value predictable. Issue them on public blockchains, enabling instant settlement, 24/7 operation, and frictionless cross-border transactions. We believe that the emerging regulatory framework for stablecoins (the intrinsic part of its "monetary nature") should align with our core principles on how stablecoins serve users.

• No Permission Needed: Individuals should have control over their own wealth without the heavy restrictions imposed by intermediaries on their accounts. • No Borders: Geographic location should not determine whether someone can make or receive payments, or how long a payment takes to send or receive.

•Privacy: Consumers should be able to freely engage in commercial activities without fear of unreasonable surveillance from the government, private sector, or other consumers. •Trustworthy neutrality: Global currency flows should be free from discrimination, allowing people from various backgrounds to freely hold and use their property.

Stablecoins are the next step in the evolution of currency. They rely on sovereign credibility like traditional fiat currencies, but unlike previous forms of electronic fiat currency (and their payment systems), they separate trust in sovereignty from trust in corporate power. The best monetary assets are based on the best monetary technology and networks.