Michael Hudson – US Cryptocurrency as an Offshore Banking Centre

The US needs to attract foreign currency to maintain the Dollar’s hegemonic position: what better way than via cryptocurrency?

Michael Hudson is an American economist, a professor of economics at the University of Missouri–Kansas City, and a researcher at the Levy Economics Institute at Bard College. He is a former Wall Street analyst, political consultant, commentator, and journalist. You can read more of Hudson’s economic history on the Observatory.

Cross-posted from Counterpunch

Picture by Alpha Photo

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.”

I should have added the real kicker. Stablecoins don’t pay interest. So buyers will get the equivalent of a US Treasury security — but NOT the interest  (now in the high 4% range). The Stablecoin company will get that. This is a HUGE bonanza for them — and a correspondingly huge foregone income by Stablecoin holders.

Why don’t they simply by US Treasury bills, notes or bonds themselves?

The answer must be ideology (imagining Stablecoins to be anti-government when the money is lent to governments), ignorance, and SECRECY. They pay a huge opportunity cost for hiding their identity and the source of their money.

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