Yves here. While Hudson outlines a telling proposal by the super neoliberal American Enterprise Institute, it’s important to describe it is bases on major misperceptions. The first is that the US needs to sell bonds to fund its operations. No less than both Alan Greenspan and Ben Bernanke have said otherwise. The Bank of England has entire primers that similarly describe how funding and money creation work, and they make clear that these activities do not depend on debt issuance. A country that creates its own currency cannot involuntarily default. It can always (like the Lannisters) pay its debts. It can engage in too much net spending (as in run overly large budget deficits) and create high levels of inflation.
Second is that, as outlined in considerable detail in Nicholas Shaxxon’s Treasure Islands, the US already has the biggest “offshore” banking center, via the Caymans, Wyoming limited liability companies, and other tax secrecy jurisdictions in the US banking umbrella, even as of his writing larger than UK tax havens such as the Isle of Man.
Third is that stablecoins are generally a scam, since the promoters cannot resist the temptation to increase their profits via insufficient collateralization of their coins.
By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is The Destiny of Civilization.
The Wall Street Journal ran a revealing op-ed today (June 14, 2024) by Paul D. Ryan, “Crypto Could Stave off a U.S. Debt Crisis.”
Mr. Ryan, libertarian Republican House Speaker 2015-2019 and now at the right-wing American Enterprise Institute, writes that: “Stablecoins backed by dollars provide demand for U.S. public debt and a way to keep up with China.”
He reports that “According to the Treasury Department and DeFi Llama, a cryptocurrency analytics site, dollar-based stablecoins are becoming an important net purchaser of U.S. government debt.” If the stablecoin fund was a country, it would be in “the top ten of countries holding Treasuries – smaller than Hong Kong but larger than Saudi Arabia.” So the result of officially promoting them “would be an immediate, durable increase in demand for U.S. debt.”
Ryan says that “bipartisan support in Congress … would help dramatically expand the use of digital dollars at a given critical time.”
Here’s the real logic. I’ve written before about how c. 1966 or ’67, I was Chase Manhattan’s balance-of-payments economist, and a bank officer, apparently having joined from the State Dept., asked me to review a memo proposing to make the United States “the new Switzerland,” that is, a haven for the world’s drug money and other criminal money laundering, for kleptocrats and tax evaders in order to help stem the U.S. balance-of-payments deficit that resulted entirely from foreign military spending in Southeast Asia and elsewhere around the world.
Today, as foreign countries de-dollarize their trade – for instance, when Russia and China trade for oil and industrial products in each others’ currencies – U.S. financial strategists worry about what this will mean for the dollar’s exchange rate.
Actually, transacting such foreign trade in non-dollar currencies has no effect on the U.S. balance of payments. It does not appear in the trade balance or even in foreign investment, although de-dollarization may deprive U.S. banks of currency-trading commissions to handle such transactions.
What does affect the demand for dollars is conversion of assets denominated in foreign currency into the dollar. This king of confidential banking is what pressed up the Swiss franc so much in the 1970s and ‘80s that it priced Swiss manufactures out of foreign markets. Companies like Ciba-Geigy had to move their production across the border to Germany to prevent the rising franc’s valuation from making them uncompetitive. (When that company brought me over in 1976, I found that the price of a coke was over $10, and a regular meal cost $100.)
The U.S. is seeking to protect the dollar’s high value, not lower it, so it sees acting as the destination for world’s tax avoiders, criminals and others as a positive national strategy. (“Kleptocracy is us.”) The plan is not to condemn tax crime and more violent criminal activities, but seeking to profit for being the banker for these functions. The logic is, “As the world’s leading free-market democracy, we’re providing a secure for the world’s capital, however it may be ‘earned’ or otherwise obtained.”