Safe Money

This Article provides the first comprehensive survey and evaluation of proposed approaches to the central financial reform issue of our era: making all money held in account form “safe,” or non-defaultable, in the same way a dollar bill cannot default. Financial crises are at core a problem of defaultable money; preventing such crises requires making money safe. The goal is eminently achievable; indeed, a number of plausible proposals have been advanced. The project has two aspects: providing better safe money options and eliminating unsafe money. This Article analyzes safe money approaches and concludes that expanding “base” money—that is, direct claims on the central bank—and removing deposit insurance caps could be equally effective at making money safe, even if they offer different benefits along other dimensions. On the other hand, tightening bank risk constraints in the absence of guarantees and various proposed solutions from the “cryptorealm” are suboptimal solutions. Because past experience has shown that safe-money options on their own do not automatically lead to the disappearance of unsafe money, proactive measures to eliminate unsafe money are also called for. Either of two approaches, taxation and prohibition, could prove effective in achieving this goal. This Article argues that prohibition is nevertheless preferable as it is likely to prove more robust to regulatory rollback efforts