Are state digital currencies even possible?

In July, the American state of Wyoming shared an open job position for the head of its Stable Token Commission. 

The executive will work alongside Wyoming’s governor, state auditor, state treasurer and four expert appointees to bring the state’s very own stablecoin to life.

While Wyoming was the first to pass a law on a state stablecoin, it isn’t the only state considering launching its own digital currency.

In April, a similar initiative was proposed in Texas, where lawmakers introduced bills for creating a state-based digital currency backed by gold.

However, the idea of state stablecoins raises many questions: How would they affect the monetary stability of fiat money and the power of the Federal Reserve? Could they be compatible with a central bank digital currency? Do people really want to return to a system with state banks printing their own monetary notes?

The Wyoming experiment

The Wyoming Stable Token Act was originally introduced in February 2022, in the midst of the crypto market crisis. The bill defines the Wyoming stable token as a virtual currency representative of and redeemable for one U.S. dollar held in trust by the state of Wyoming. Basically, the state would tokenize the federal currency on a 1:1 ratio with deposits. 

NEWS–bipartisan group of top #Wyoming legislators proposed a bill for State of Wyoming to issue a #stablecoin, 100% backed by USTreasuries, where the State keeps the float. I see pros & cons (didn’t know it was coming) but❤️that Wyoming continues to explore cool #crypto ideas! https://t.co/BXbELukUQE

— Caitlin Long ⚡️ (@CaitlinLong_) February 17, 2022

Explaining why state lawmakers took such an interest in the digital token project, Chris Rothfuss, the minority leader in the Wyoming State Senate, told Cointelegraph:

“Wyoming needs to be able to transact in a digital currency — to accept payments, to make payments, and to do so without risk. The Wyoming stable token is the solution to that challenge.”

A notable reservation in Section 2 of the Stable Token Act makes the state’s attorney general responsible for monitoring the startup phase of the token’s issuance. Should the attorney general believe it contradicts federal or state law, the project would be frozen. 

The bill also sets a deadline for the project: The commission’s director shall provide their report on the doability of the stable token no later than Nov. 1, 2023.

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