USD hegemony 2.0: How can stablecoins support US finances?
Author: Chairman Tuzhuxi
Original title: A New Weapon for Dollar Hegemony: Stablecoins
This week, President Trump and the crypto industry will have their first major legislative victory in the cryptocurrency sector: US House Republicans are preparing to accept the new stablecoin regulation bill proposed by the Senate (“Global Crypto Innovation Guarantee Act”, also known as the GENIUS Act). This is the first time that the US has introduced a stablecoin regulatory framework. One of the core elements is to require stablecoin issuers to ensure that tokens are linked 1:1 to the US dollar and reserve or invest the funds raised by issuing tokens in highly liquid US dollar assets, including cash, bank statements, and US Treasury bonds. The signing of the stablecoin bill will inject strength into the crypto industry and related markets, while supporting America's fiscal needs and maintaining the status of the US dollar (US dollar hegemony). It can be called “killing many birds with one stone”
The cryptocurrency industry has been wandering in a marginal and grey area for many years, and has never been able to integrate into the mainstream; its supporters have always hoped to obtain legislative approval from the US government and operate under an exclusive regulatory framework, which can further open the door to the participation of traditional/mainstream financial institutions and enhance the breadth and depth of the cryptocurrency market. Earlier, the crypto industry had been lobbying Congress for many years, never waited for the right time, and there was also a dispute over the central bank's digital currency (CBDC) route. Last year, they bet on supporting Trump in the general election. After Trump won the election, they finally waited for the right time to push the relevant legislation and become the biggest beneficiary of Trump's second administration.
1. “Good times, places, and people”: Background of the introduction of a stablecoin regulatory framework
The crypto/stablecoin industry itself is of course seeking development, but other conditions are needed to obtain political approval and government endorsement in the US. An important background for the introduction of the so-called “timely and geographical advantage” regulatory framework is that the US faces serious fiscal sustainability issues, and the status of the US dollar is under unprecedented threat.
1. US fiscal deficit
The US fiscal deficit for fiscal year 2025 is expected to reach 1.9 trillion US dollars, accounting for 6.2% of GDP. This figure is a significant increase from previous years and is the result of the continuous expansion of US fiscal policy. The “Big and Beautiful Act” recently promoted and passed by the Trump administration is expected to increase the deficit by another 3.4 trillion US dollars over the next 10 years, further worsening the situation. Market opinion leaders such as Elon Musk in the corporate world and Ray Dalio in the financial world to J.P. Morgan Chase Jamie Dimon in the financial world have all pointed out that the US government's finances have been unsustainable for a long time, and the future is bound to cause a disastrous crisis.
2. US Treasury Depends on US Debt
How did the US federal government's fiscal unsustainability trigger an economic and financial crisis? The core is to focus on US Treasury bonds, that is, the US government's ability to finance. In a deficit situation, the US government's way of meeting fiscal needs is through treasury bonds — including new issuance and refinancing. Currently, the balance of US Treasury bonds has exceeded 36 trillion US dollars, and 80% will mature in the next four years (about 7 to 10 trillion US dollars due each year). More than 80% of investors are market-based institutions. Issuance requires accompanying market entry, and there is real pressure to refinance.
Some people say, can't US bonds be sold? What are the risks? The answer is, of course, US bonds can be sold, but the pricing of US bonds is highly market-based, and common sense of economics tells us that the price is determined by supply and demand. Assuming that the market demand for US bonds does not change, other conditions are equal, when the supply of US bonds increases and the supply exceeds the market's willingness to buy, then interest rates will increase — the US government should use higher interest rates to attract investors to invest and hold US bonds.
Higher interest rates will only have one result: raising the US government's financing costs while driving up the overall interest rate of the market, increasing everyone's financing costs, thus harming the economy, and not only the US economy, but the global economy — everyone has to pay irresponsibly for the US treasury — this is another side effect of the US dollar's hegemony.
Therefore, when we analyze the financial unsustainability of the US government, the final analysis is US debt, how can the US government maintain a large issuance volume at a lower interest rate. There are only two methods: either reduce circulation or let more people buy it. (Reducing circulation is taken from the perspective of GDP. Assuming that the size of the fiscal deficit remains the same and GDP increases, it is equivalent to reducing the relative circulation volume)
3. The root cause of harming the status of the US dollar and worsening the supply and demand situation of US debt
So, can the supply and demand problems of US debt be solved? I'm afraid it won't work under the current framework. Distribution continues to grow, while demand continues to shrink. Next, let's do a brief analysis.
1) America's fiscal carnival and deficit politics. The “Big and Beautiful” Act pushes for large-scale tax cuts, but there are no corresponding spending cuts, which will of course worsen the fiscal deficit. The logical logic is: if the government's income and expenditure match, benefits must be reduced; if benefits are increased, taxes must be increased. This is a basic principle. However, America is electoral politics and follows the interests and will of voters and interest groups. Everyone supports tax cuts out of self-interest, and they also seek out all kinds of pompous reasons for tax cuts (including right-wing “trickle-down economics,” which has been fully falsified by history). At the same time, most people oppose cutting benefits out of self-interest, and left-wing politicians also want to increase benefits; right-wing politicians also know that they can play at most a dozen nationalist and racist cards to slightly cut benefits for illegal immigrants and ethnic minorities, but it is impossible to cut benefits for most people (this move will definitely have heavy political costs). Therefore, politicians' choices ultimately reflect the choices of countless individual citizens. Everyone is willing to overdraft their future or pass on their problems to others for their own short-term self-interest. The result of such a system actually encourages moral risk and will inevitably lead to uncontrolled fiscal carnival and “deficit politics.” And this problem exists not only in the US, but also in many other advanced Western economies.
According to the theory, improving the economy and making the cake bigger can also solve financial problems. questions
Most developed economies have already fallen into development bottlenecks. Further development requires extensive industrial policies and infrastructure construction (following the Chinese model), and this will inevitably require more fiscal expenditure, which in turn will increase fiscal risks. For the average country, in the end, it may just go back to adhering to fiscal discipline.
However, America is different. First, American politics is completely torn apart, and the two parties are almost unable to reach agreement on any issue; tax and welfare issues are fundamental ideological differences; second, the US has the “right to mint coins,” and can pass the problem on to others by printing money.
2) The Trump/MAGA factor. In addition to the structural factors mentioned above, there are also some new factors since Trump's second term, including Trump's personalized politics, “America First” and right-wing populist economics, and changes in international politics. All of these factors played a role: further weakening confidence in the US economy and weakening demand for the dollar. Specifically, they include:
a) Economic policy: Trump's trade war goals are unclear, logic is chaotic, erratic, and execution is chaotic. As a result, the international supply chain is disrupted, consumer prices are under pressure, traditional alliances are destroyed, and the industry is stuck on the sidelines. And America's policies will inevitably reduce its share in global trade, thereby reducing the demand for dollars from all parties. In addition, expelling immigrants, cracking down on colleges and universities (affecting America's ability to attract and retain talent), and cutting industrial policies have greatly increased the uncertainty of the US economic outlook). These factors have led to an overall decline in investors' enthusiasm for investing in the US (with the exception of a few technology sectors). Many international investors believe that the era of “American exceptionalism” has come to an end, and they are seeking diversification and alternative asset layout
b) Undermining the independence of the Federal Reserve: The prospects for Trump to politicize the Federal Reserve during his tenure are largely a foregone conclusion (by replacing Powell, pushing personal cronies to power, and forcing interest rate cuts). Countries and markets are worried that the Federal Reserve will lose its independence and public nature as a result, and US monetary policy is beginning to be dominated by political rather than economic factors
c) Expansion of America's political rift and deficit logic: Since Trump's return to the White House, America's political rift has further intensified, falling into a civil war without smoke; all countries have seen that it is no longer possible for the US to actually resolve the fiscal deficit problem at home; it can only continuously raise the debt ceiling and resolve the deficit problem through debt. So, will the government break the contract? How do you finally pay off your debts? The answer is, the US government doesn't need to default — it has the “right to mint coins,” and printing money can solve the problem. However, printing money comes at a cost; in the end, it will reduce investors' returns and allow investors to pay for debts. Investors are not stupid; these expectations are already reflected in the yield on long-term US bonds. Higher interest rates will have one result: increasing the overall financing costs of the market and affecting the economy
d) Fluctuations and “weaponization” of US debt: Over the past few months, the bond market has often fluctuated along with the Trump administration, and the market already knows that US debt is a powerful tool to restrain Trump. There are several concerns here. First, the bond market has become a policy game field, increasing volatility and uncertainty; second, other countries can play games with the US government by selling bonds. This is also a negative result of the US government being too indebted: the market and rivals are holding back the US government through US debt. Of course, this is not a phenomenon that US debt investors want to see
e) Europe's independence from the US: Trump is reshaping transatlantic relations, including threatening to cancel defense promises to NATO/European allies, fighting a trade war with the EU, etc., while interfering in European domestic politics. And Europeans know very well that behind Trump, there is also a more aggressive MAGA “America First” and isolationism behind it. The resetting of America's relationship with Europe is a medium- to long-term trend. Based on this, Europe can no longer confidently expect the US to fulfill its historical promises in defense; it cannot rely entirely on the economy and technology; instead, it must pursue independence and autonomy. Along with Europe's rise, even pursuing deficit financing (such as supporting national defense) will lead to an increase in the euro's status. The euro will become an important force in the multipolar monetary system
f) Bitcoin issue: In addition to stablecoins, Trump's cryptocurrency agenda. There's also Bitcoin. The Trump administration has also been proposing to use Bitcoin as a reserve currency. Unlike stablecoins pegged to the US dollar (such as Tether), Bitcoin's growth dilutes the US dollar's relative position. The Trump administration's push for Bitcoin will actually hurt the dollar's hegemony
g) “Weak dollar” economics: Many staff in the Trump administration have always had an opinion that a strong dollar affects the development of the US industry. However, the US dollar is too strong as a result of the US being an international reserve currency: all countries want to hold the dollar, which naturally pushes up the value of the dollar, and the US needs to pay for it (of course, those who hold this view keep quiet about the benefits brought by the US “right to mint coins”). Trump himself has echoed this view and complained about America's losses. As far as the market is concerned, the US government's personal proposal of a “weak dollar” policy is a wake-up call — the US market has fluctuated in the past few months, and many people even think this is the intention of the Trump administration (“Sea-Lake Manor Agreement” conspiracy theory)
3) International geopolitical environment
a) “Weaponizing” the status of the US dollar: Over the past few years, the US has imposed numerous economic sanctions and blockades against Russia, China and other countries. Economic sanctions have become a common means of US diplomacy, and both parties use this method. Trump's second administration continues to exert extreme pressure on countries, and does not distinguish between traditional allies and rivals, further undermining international rules and order. Countries are increasingly worried that the US government will use the US dollar as a global reserve currency (accounting for about 60% of global foreign exchange reserves) and the main currency in international trade (about half of transactions are denominated in US dollars) to weaponize the dollar and impose sanctions on other countries — measures include cutting off SWIFT visits, freezing US dollar assets, and imposing various second-level sanctions. This has also forced countries to start discussing “de-dollarization” and look for alternative payment systems (such as China's CIPS)
b) International geopolitics and the multipolar monetary system: Long before Trump's second term, international geopolitics had become more diverse and developed in the direction of a multipolar order. This trend is not transferred by the will of individual countries, individual governments, or individual leaders; it is a natural development result. In fact, Trump himself abandoned “peace under American rule” after World War II and accepted some version of the multipolar order. However, what matches the multipolar political order cannot be a monetary system dominated by the US dollar; it must be a multi-polar monetary system. Therefore, judging from geopolitical trends, diversification of the monetary system is the only way, and one inevitable result of diversification of the monetary system is the decline in the status of the US dollar
c) The emergence of alternative investment assets: Everyone knows about the structural problems that exist in the US. They all want to invest more diversified and not in the US “basket,” but the key is to have alternative options. Since this year, the price of US bonds has soared, and the US dollar has weakened (depreciation of 10% against a basket of currencies), but the prices of investment products hedging US economic risks have all risen sharply, including Bitcoin (up about 25% during the year) and gold (about 10% increase during the year). Additionally, investors have discovered that China can invest in growth (revaluation of China's assets brought about by DeepSeek and allow countries to re-examine the “Made in China 2025” achievements); Europe can invest in defense (Europe will introduce more deficit financing, and the issuance of European bonds will expand investment assets in the euro). These factors are all reducing the market's enthusiasm for investing in US dollar assets, which in turn reduces demand for US dollars. (The result was a weakening of the US dollar index)
4) Finance is confidence: Finally, finance is based on expectations and confidence. Based on the above various economic, financial, and geopolitical factors, all parties have weakened their confidence in the US economy and the US dollar, and it is estimated that others will also make this judgment, which will form a superimposed “float effect” or “flock effect”, which will accelerate the decline of the US dollar.
4. US fiscal difficulties and catastrophic crises
Let's take a look at America's financial difficulties. The current few paths are unworkable:
First approach: reducing the fiscal deficit — it's impossible. Only by narrowing the fiscal deficit and repaying historical debts is the fundamental solution to the repayment problem. According to the previous analysis, the electoral systems of many developed economies eventually led to fiscal carnage and deficit politics, and in the current political situation where the US is completely torn, lacks basic consensus, and all issues have been politicized and “civil war”, there is no need to expect to resolve the fiscal deficit issue through political means. Every political party that comes up will increase the deficit — for example, the Democratic Party is currently planning to increase welfare, increase overseas aid, and various industrial policies. If the Democratic Party comes to power and can implement its own policies, then the fiscal problem will only get worse. Basically, it can be judged that America's deficit will continue to grow.
Method 2: The economy is growing faster than the deficit is expanding faster — it can't be done
. This is how to make the cake bigger, and then reduce debt as a share of GDP and interest expenses as a share of fiscal expenditure. Just talk about this number: in the past five years (2020 to 2024), the average US deficit growth rate is about 7.5%, and GDP growth is about 2.5%; in the next ten years (2025 to 2035), the average deficit will grow by 3.5% and GDP by 1.8%. The deficit grew much faster than GDP. Dalio and others believe that America's debt level will rise from around 100% of current GDP to 130% by 2035.
The third method: increasing investors' demand for US debt — this cannot be done. The US fiscal crisis is a “gray rhinoceros” that everyone can see: it won't happen right away, but it is destined to happen, not in the form of a default, but in the form of printing money — a significant dilution of the dollar's value. At this point, the US government needs to attract investors through higher yields. Therefore, the “gray rhino” of the US fiscal crisis is reflected in the high yield on US long-term treasury bonds: in July 2025, the yield on US 10-year treasury bonds was about 4.41%, fully reflecting market concerns about deficits and inflation.
Different professionals use different methods to assess the risk of fiscal deficits. Many methods compare interest on government debt with the government budget in some way. Financial historian Nial Fergusson (Nial Fergusson) has a so-called “Ferguson law,” which combines finance with geopolitics. He believes that the most effective criterion for judging the unsustainability and risk of a country's debt is whether the country spends more on debt interest than it spends on defense. In fiscal year 2024, interest expenses on US Treasury bonds have reached 1.1 trillion US dollars, exceeding the total defense budget of about 900 billion US dollars for that year. Ferguson believes that almost all countries that have violated the “Ferguson Law” in history have eventually lost their status as “powerful countries” in financial markets and geopolitics. The trigger could be a military conflict or a gradual recession, and the US is on this path.
Bond investors don't need to know the “Ferguson Law,” but they know how to price US bonds, which is enough.
The above is a crisis brought about by the unsustainable nature of US finances. Due to the status of the US dollar, it affects not only the US, but also the global economy. America's irresponsible fiscal policies are paid for by the world.
2. Amazing deal: stablecoins
The previous analyses were all “static”, that is, they only consider the relationship between supply and demand under the existing framework, but not “dynamic” factors.
The so-called “dynamic” factor is to try to introduce new mechanisms to allow more people to buy US debt. If there is more demand, wouldn't that solve the problem?
At this point, stablecoins made a brilliant debut. When we talk about stablecoins, we mainly mean Tether (USDT).
Depending on the caliber, the size of global stablecoins is around 250 billion US dollars, and the vast majority of them are linked to the US dollar, reflecting the dominant position of the US dollar in global finance. With a total market value of about 160 billion US dollars, Tether definitely dominates it. As the first large-scale US dollar stablecoin, Tether was originally designed to solve the problem of price fluctuations in traditional cryptocurrencies (such as Bitcoin and Ethereum) by linking 1:1 with the US dollar, and to create a safer digital asset (“digital dollar”) that is not affected by market fluctuations and is suitable as a medium of transaction and value storage tool.
As a result, each Tether is worth $1, and (allegedly) is backed by the equivalent dollar or other equivalent assets (such as US Treasury bonds) held by Tether to ensure a 1:1 linkage. Users can trade, hedge, and transfer money on the blockchain network without relying on traditional financial institutions.
Without the endorsement and “intervention” of the US government, Tether also has a very “beautiful” business model:
1. User side:
Tether has multiple benefits: it is anchored to the US dollar, the price is stable, and it has a value preservation function; transaction security; high efficiency; low cost (far lower than traditional payment methods); and anonymous transactions, which can maximize privacy protection. Most importantly, many countries' monetary systems are weak, and investors want to hold dollars to avoid the risk of depreciation of the national currency, and Tether is no better choice. This functional advantage allows Tether to have both positive and negative effects.
The positive effect is inclusive finance: in countries with high inflation rates such as Argentina and Nigeria, stablecoins have become a lifeline for people to preserve their assets. Locals directly exchange wages for stablecoins to resist the depreciation of the local currency; through local encryption apps, they can directly pay rent, daily expenses, and complete traditional remittances. In these developing countries, demand for dollars has been subdued.
The negative effects are criminal channels:
International criminal groups soon discovered that Tether is an excellent way to transfer drug money across borders, evade sanctions, create a closed chain of money laundering, and can also drastically reduce money laundering commissions. Furthermore, due to the huge public demand for assets linked to the US dollar, it is conceivable that Tether/stablecoins will greatly spur illegal fund-raising and financial fraud activities.
As a tool, Tether/stablecoin itself is “neutral,” but its emergence will seriously affect countries' monetary sovereignty and financial sovereignty.
2. Platform side (stablecoin issuer)
The stablecoin model ensures that issuers can generate huge profits. For Tether, this is an excellent deal: users exchange real dollars for digital dollars issued by the company, and Tether uses the raised dollars to invest in income generation and cover all profits, because unlike banks or monetary funds, the platform is not obligated to pay interest to users. The circulation of Tether in 2024 was about 160 billion US dollars, and the company had only 100 employees. As a result, it achieved a profit of 13 billion US dollars, making the company one of the companies with the highest per capita income in history.
Tether invests most of its capital into the safest type of investment, namely US Treasury bonds. According to reports, in January 2025, Tether's holdings of US Treasury bonds reached $113 billion. If you think of Tether as a country, it will become the 7th largest overseas holder of US debt, ranking between South Korea and the UAE.
At this point, US debt came into play. Stablecoins are linked to US fiscal sustainability and the hegemony of the US dollar.
3. Maintain US finances and maintain the hegemony of the US dollar through stablecoins
Since Trump's second administration, the problems of the US fiscal crisis, the weakening status of the US dollar, America's domestic political rift, and the collapse of the US-dominated international order have all become more acute. Washington politicians are keenly aware that measures must be taken to deal with future crises. Everyone knows that American politics is no longer able to resolve the growing problem of fiscal sustainability (both the government's solvency issues) — voters' wishes and the rift between the two parties have made it difficult to implement fundamental reforms such as raising taxes or cutting benefits. By contrast, shifting the crisis overseas is a very “convenient” option: by inducing the world to use dollar assets more widely, new channels can be opened up for US debt financing.
Stablecoins are the “key move.” The US Congress passed legislation to give stablecoins legal status, require them to be linked to the US dollar, and guide issuers to invest the funds raised in US bonds. Thus, the entire stablecoin ecosystem is linked to US finance, significantly increasing demand for US bonds, making up for America's growing fiscal deficit, and keeping interest rates on US bonds at a low level.
Behind this is the fact that countless players in countless global economies — the world is coming together to pay for America's deficit.
This is a conspiracy, not a conspiracy. US Treasury Secretary Scott Bessent said in an article on the X platform last month calling for the passage of stablecoin legislation: “This is a win-win plan for all parties: the private sector, the treasury, and consumers can all benefit.”
By being linked to the US dollar, stablecoins, in addition to expanding US debt, can also help strengthen the global position of the US dollar. Indeed, they are “killing many birds with one stone.”
Note that this plan was not proposed by Bezent himself: as early as Biden, Yellen's Department of the Treasury proposed this — to be precise, it is a core component of the cryptocurrency regulatory framework accepted by all parties.
It's just that the current situation is more serious a few years ago, which has accelerated the regulatory agenda.
Tether has played an important role in this. CEO Paolo Ardoino is Italian and lobbies everywhere,
The utility of Tether as an instrument of financing US debt and a means of power was emphasized. He warned US politicians that “China is planning to launch its own cryptocurrency” and that “it may be linked to the price of gold and used for international trade settlement, thereby shaking the status of the US dollar.” Aldoino said the popularity of Tether would help “counter this threat.” In March, he accepted Bloomberg and said, “We represent the most important application scenario for the US dollar's global hegemony. We have taken root in emerging markets and built the infrastructure for the dollar system from scratch... Tether is the last bastion that supports the dollar.”
Of course, this statement can impress US politicians who are burdened by fiscal deficits and Chinese challenges.
However, the introduction of stablecoins only expanded the demand side and allowed more institutions to participate in the purchase of US debt, but it did not fundamentally solve the US fiscal deficit problem; that is, it essentially uses liquidity to solve the solvency problem. Of course, this method is America's abuse of the “right to mint coins” and abuse the status of the US dollar, which may further increase the “moral risk” of the US government in terms of finance, and there will be even more unrestrained in the future.
Observers can use a variety of terms and concepts to describe this strategy. For example, some people say this is a “restructuring of the Bretton Woods system.” However, the author thinks that this practice is more like a “Ponzi scheme” of the monetary system, or “the perpetuation of the monetary system.” The essence of the so-called “Evergrandization” is that existing stakeholders work together to continuously trick in introducing new funding sources (“chives”) to enrich the original plate, so that this plate can continue.
Pay attention to the two key elements in this big step of the game.
The first one is Trump. It's a critical part. He himself has no feelings about cryptocurrencies, and is even quite negative. However, his two sons are big on cryptocurrencies and brought the family into the industry. Trump himself launched the TRUMP meme coin in 2025, and his wife Melania also launched the MELANIA meme coin, which attracted widespread attention. It is known that cryptocurrencies have surpassed real estate in the Trump Group's revenue. Once the Trump family has an interest, it is easy to push this matter forward. As a result, Trump took the lead in promoting relevant legislation. Since last year's election, the cryptocurrency industry's efforts have not been in vain. And Trump Jr., is the most critical key figure in it.
The second is the Republican Party. Before stablecoins, there was also a “competitive” route: central bank digital currency (CBDC), and both competed for a share of the digital payments market. If stablecoins are issued by the private sector, the emphasis is on market flexibility, deregulation, and decentralization, while CBDCs are dominated by central banks and focus on monetary sovereignty and regulation. The Biden era was cautious about CBDC, but the Democratic Party considered financial risk more than government control; the Republican Party completely opposed CBDC. Compared to stablecoins, the most important considerations were at the political and ideological level: the Republican Party believes that CBDC is government-led, gives the government too much control, “threatens personal privacy,” “weakens market freedom,” and is a “socialist” mechanism. Ultimately, Trump's Republican administration chose stablecoins. In January 2025, Trump signed an executive order prohibiting the issuance of CBDCs and favoring stablecoin development. Treasury Secretary Bezent said in May 2025, “Strong currency countries do not need to issue central bank digital currencies; the private sector is more suited to develop digital assets.”
As can be seen, Trump's family interests,
The ideology of the Republican Party is an indispensable factor in deciding the introduction of a stablecoin regulatory framework in the US.
4. Stablecoin Risks: Monetary Sovereignty and Crime
The issue of monetary sovereignty
If the US Congress passes legislation, it will endorse “compliant” US dollar stablecoins and accelerate their “siege” in emerging markets. In countries with sharp currency fluctuations and weak monetary systems (such as Argentina, Nigeria, Turkey, etc.), stablecoins are rapidly replacing the function of local currency. With the power of Argentina, migrant workers have been converting their savings into Tether, using crypto apps to pay rent, and even in supermarkets, they can use Tether to scan codes to buy Coke; Nigerian payment platform Juicyway's US dollar stablecoin deposits surged tenfold within a year, reaching 64 million US dollars, and this is just the beginning.
This “bottom-up dollarization” is extremely corrosive — when people are embracing stablecoins due to loss of confidence in the national currency, the government has actually lost the ability to regulate monetary policy. Capital can flow freely across borders through stablecoins, which may instantaneously impact vulnerable economies and amplify financial fluctuations. The Bank for International Settlements (BIS) has warned that unregulated stablecoin flows could trigger disruptive capital flight, and second-tier stablecoins infiltrate payments, payroll payments, and even commodity trade (Tether now controls agricultural giant Adecoagro). If there is a crowding out or credit crisis, it may cause financial risks throughout the market. Finally, it should be noted that stablecoins are linked to the US dollar and are anchored in the US economy, US finance, US politics, and US social issues. As a result, each country's economy lost its monetary sovereignty and financial sovereignty, and was further tied down by the US to share all US political and economic issues (such as fiscal unsustainability).
Crime issues
The anonymity and cross-border convenience of stablecoins have made them a haven for money laundering. Foreign media reported that the international community has now developed a very complex and very mature cross-border money laundering network, and the processing fee is very low (about 3%, far lower than the 10% cost of traditional criminal money laundering). Although Tether, the number one stablecoin company, claims that it has frozen 2.5 billion US dollars of illegal assets in cooperation with the US government's law enforcement, the vast majority of its nearly 500 million users around the world have not been strictly verified, and there are tens of millions of new users every quarter. Tether has a total of just over 100 people, and its “financial crime investigation department” has only 20 to 30 people. It cannot be said that it is a complete fiction; it is nothing. However, Tether itself registered in El Salvador in order to evade regulation (this bill does not cover this issue), creating a huge regulatory vacuum.
However, due to people's yearning for high-quality investment assets, stablecoins can easily become a means of illegal fund-raising and financial fraud because of the gimmick of cryptocurrencies. Once a country's government fails to supervise it, it may cause criminal cases to cause major economic and social risks, and even endanger stability. This should be a problem that will cause great headaches for regulators in various countries in the next few years. The core point is that the operation of stablecoins such as Tether completely goes beyond the scope of national sovereignty; governments can only request information from them, but they cannot force their cooperation.
However, Tether is also not low-key; it believes that it is the promoter of the US dollar hegemony and a kind of spokesperson for the US government. When CEO Ardoino spoke outside, he had already left the head of a country and was figuring out which country to “form an alliance” with. In a recent interview, he said, “We mainly cooperate with US law enforcement agencies, and we usually don't cooperate with law enforcement agencies in authoritarian countries.” ——This is a blatant and blatant disregard for the sovereignty of other countries.
5. Dealing with stablecoins
Stablecoins are not only used by the US government to solve fiscal problems; they are also geo-competitive tools. The current law requires compliant publishers to customize products for the US market while allowing them to expand overseas. Tether has announced that it will issue a separate stablecoin for US users, and the original product continues to replace local currencies in emerging markets, weakening other countries' financial sovereignty.
If you look at its essence, it can be seen that the essence of the US stablecoin bill is still to use other countries' monetary sovereignty (“shedding wool”) in exchange for irresponsible and unsustainable finances, while continuing to promote the hegemony of the US dollar by bundling other economies.
For emerging market countries, if they do not sit back and give up their monetary sovereignty and financial sovereignty, they need to take defensive measures to limit the use of stablecoins locally and prevent the impact of disorderly capital flows. China is a country with capital controls. Naturally, it already has monetary sovereignty barriers. For many countries, the financial lifeblood is actually already in the hands of others.
Looking at the medium to long term, we need to see the geopolitical and economic logic behind the US dollar's bucking trend, continue to explore CBDC, or build a stablecoin system that anchors a basket of currencies and serves as a counterbalance to the US dollar stablecoin.
Finally, under the Trump administration, the US Republican-led Congress introduced such legislation, considering that they are all US priorities and US interests, and will not consider the rights and interests of other countries, let alone spillover risks, costs, and global financial governance. This also requires countries to work together to establish a cross-border regulatory framework to fill offshore stablecoin loopholes, curb criminal capital flows, and prevent financial risks. Otherwise, by the time the crisis came, it would be too late.
