A Digital Money Rush is Great. A Run, Not So Much

A Digital Money Rush is Great. A Run, Not So Much

In Hong Kong, money has been privately issued since 1846. The bill in my wallet is a promise from HSBC Holdings Plc's local banking unit to pay the value written on it. In accepting it, I gave no thought to the creditworthiness of the lender. Whoever it's passed on to will also take the banknote at face value, and won't ask for Hong Kong dollars printed by Standard Chartered Plc instead.

Not requiring due diligence on cash sounds commonsensical, but it's actually a highly valuable property of money everywhere. Indeed NQA, or "No Questions Asked," is so important that Yale School of Management finance professor Gary Gorton and Federal Reserve attorney Jeffery Zhang have made it the centerpiece of their new paper, titled "Taming Wildcat Stablecoins."

Blockchain-based stablecoins such as Tether and the upcoming Diem are the latest form of private money: Tokens that don't offer Bitcoin-type speculative thrills but seek acceptance instead as one-to-one clones of national currencies. They could become a powerful part of the modern digital economy, provided we know how to prevent a run on them.

Trust in physical cash is supplied by regulators. Since the value of Hong Kong's currency is pegged to the US dollar, the city's