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US cryptocurrency as an offshore banking center
Photo by Kanchanara
The Wall Street Journal published a revealing editorial by Paul D. Ryan today (June 14, 2024), “Cryptocurrencies Could Avoid US Debt Crisis.”
Ryan, the libertarian Republican House speaker from 2015 to 2019 and now a fellow at the right-wing American Enterprise Institute, writes that: “Dollar-backed stablecoins provide demand for US government debt and a way to keep pace with China” .
It reports that “Dollar-based stablecoins are becoming a major net buyer of US government debt, according to the Treasury Department and DeFi Llama, a cryptocurrency analysis site.” If the stablecoin fund were a country, it would be among “the top ten countries holding Treasury bonds – smaller than Hong Kong but larger than Saudi Arabia.” So the result of their official promotion “would be an immediate and lasting increase in demand for US debt.”
Ryan says “bipartisan support in Congress… would help dramatically expand the use of digital dollars at a given critical juncture.”
Here’s the real logic. I’ve written before about how c. In 1966 or ’67, I was a balance of payments economist at Chase Manhattan, and a bank official, apparently from the State Department, asked me to review a memo that proposed making the United States “the new Switzerland,” i.e., a haven for drug money and other types of criminal money laundering, kleptocrats and tax evaders to help stem the U.S. balance of payments deficit that resulted entirely from foreign military spending in Southeast Asia and in other parts of the world.
Today, as foreign countries de-dollarize their trade — for example, when Russia and China trade oil and industrial products in each other’s currencies — U.S. financial strategists worry about what this will mean for the dollar’s exchange rate.
In reality, the transaction of such foreign trade in currencies other than the dollar has no effect on the balance of payments of the United States. It does not appear in the trade balance or even in foreign investment, although de-dollarization could deprive US banks of currency trading fees to handle such transactions.
What influences the demand for dollars is the conversion of foreign currency-denominated assets into dollars. This king of secretive banking is what drove the Swiss franc so much in the 1970s and 1980s that it pushed Swiss manufactured products out of foreign markets. Companies like Ciba-Geigy have had to move their production across the border to Germany to prevent the rising valuation of the franc from making them uncompetitive. (When that company brought me here in 1976, I found that the price of a Coke was more than $10, and a regular meal cost $100.)
The United States is trying to protect the high value of the dollar, not lower it, so it sees serving as a destination for tax evaders, criminals and others from around the world as a positive national strategy. (“The kleptocracy is us.”) The plan is not to condemn tax crime and more violent criminal activity, but to try to profit from being the banker for these functions. The logic is: “As the world’s leader in free-market democracy, we are providing a guarantee for world capital, however it may be ‘earned’ or otherwise obtained.”
I should have added the real kicker. Stablecoins do not pay interest. So buyers will receive the equivalent of a US Treasury bond, but NOT interest (now in the maximum 4% range). The stablecoin company will get it. This is a HUGE goldmine for them – and a correspondingly huge lost profit on the part of Stablecoin holders.
Why don’t they just do it with US Treasuries, notes or bonds themselves?
The answer must be ideology (imagining stablecoins are anti-government when money is lent to governments), ignorance and SECRECY. They pay a huge opportunity cost to hide their identity and the source of their money.