This is Eve. Hudson outlines a compelling proposal from the ultra-neoliberal American Enterprise Institute, but it is important to explain that it is based on a major misconception. The first is that the United States needs to sell national bonds to finance its operations; just as both Alan Greenspan and Ben Bernanke have said that this is not the case. The Bank of England has a full set of primers that similarly explain how financing and currency issuance works, making clear that these activities do not depend on debt issuance. A country that issues its own currency cannot involuntarily default; it can pay off its debt at any time (like the Lannisters); it can engage in excessive net spending (such as excessively large budget deficits) and create high levels of inflation.
Second, as explained in some detail in Nicholas Shaxson’s Treasure Island, the United States already has the largest “offshore” banking centre, through the Cayman Islands, Wyoming limited liability companies and other tax secrecy jurisdictions under US bank umbrellas, and at the time of writing is larger than British tax havens such as the Isle of Man.
Third, stablecoins are generally scams because promoters cannot resist the temptation to increase their profits through under-collateralization of the coins.
The author is Michael Hudson, a research professor of economics at the University of Missouri, Kansas City, and a fellow at the Levy Institute for Economics at Bard College. His latest book is The fate of civilization.
The Wall Street Journal published an interesting op-ed today (June 14, 2024) by Paul D. Ryan titled, “Cryptocurrencies Could Stop the U.S. Debt Crisis.”
“Dollar-backed stablecoins would create demand for U.S. public debt and provide a way to catch up with China,” Ryan, who served as Republican Speaker of the House from 2015 to 2019 and now sits at the right-leaning American Enterprise Institute, wrote.
“According to the Treasury Department and crypto analytics site DeFi Llama, dollar-denominated stablecoins are becoming significant net purchasers of U.S. Treasury securities,” he reports. If the stablecoin fund were a country, “it would be one of the top 10 holders of U.S. government bonds, smaller than Hong Kong but larger than Saudi Arabia.” As such, an official push “would create an immediate and permanent increase in demand for U.S. Treasury securities.”
“Bipartisan support in Congress would help dramatically expand the use of the digital dollar at a critical time,” Ryan said.
The real logic is this: I’ve written before that around 1966 or 1967, when I was a balance of payments economist at Chase Manhattan, a banker who had apparently come over from the State Department asked me to review a memo proposing to turn the United States into a “new Switzerland” — a haven for laundering global drug money and other criminal monies, corrupt politicians and tax evaders — to stem the U.S. balance of payments deficit that was generated entirely from foreign military spending in Southeast Asia and around the world.
Today, as other countries move away from the dollar in trade — for example, Russia and China are trading oil and industrial products in each other’s currencies — U.S. financial strategists are concerned about how this will affect the dollar’s exchange rate.
In fact, such foreign trade, conducted in currencies other than the dollar, has no effect on the U.S. balance of payments: it is not reflected in the trade balance or foreign investment, although demonetization of the dollar may result in U.S. banks losing currency transaction fees for handling such transactions.
What influences the demand for dollars is the conversion of foreign-currency-denominated assets into dollars. The secret banking barons pushed the Swiss franc so high in the 1970s and 1980s that they locked Swiss manufacturers out of overseas markets. Companies like Ciba-Geigy had to move production across the border to Germany to avoid becoming less competitive as the franc rose. (When the company brought me to Germany in 1976, a Coke cost more than $10 and a simple meal cost $10.)
The US wants to protect the dollar’s high value, not devalue it. Therefore, it considers acting as a destination for the world’s tax evaders, criminals, etc., an active national strategy (“Kleptocracy is the US”). The plan is not to condemn tax evasion crimes and more violent criminal activity, but to profit from being the bank for these functions. The logic is that “as the world’s leading free market democracy, we provide security for the world’s capital, regardless of how it was ‘earned’ or acquired in other ways.”
