US Dollar Stablecoin: The Scepter of Currency

Written by: 0xCousin

Monetary policy has always been an extension of politics.

Throughout history, currency has never been a neutral tool. From ancient emperors privately minting copper coins to modern nations manipulating credit through quantitative easing, currency has always been an extension of politics.

The Roman Empire's "silver coins to copper coins"

In the late Roman Empire, in order to pay for the enormous military expenses and bureaucratic system, emperors began to gradually reduce the silver content in silver coins, from 90% to 70%, 50%, 30%, and finally to almost pure copper "silver coins". Essentially, it was the Roman Empire taxing the entire population with depreciated currency, which is also a prototype of ancient inflation.

The "Platinum Three Ranks" of Emperor Wu of Han

Emperor Wu of the Han Dynasty used troops against the Xiongnu for many years, resulting in an empty treasury. The country's finances were unbalanced, and the imperial court tried to change the "form of money" and implement the "platinum three products" (gold, silver, and turtle shell coinage), trying to bypass the traditional copper coin minting system to finance the war, and trying to expand the treasury through monetary innovation. As a result, because the market did not accept it, it led to currency chaos.

Nazi Germany's "Murph System"

When the Nazis came to power in 1933, in order to get rid of the financial shackles after the Treaty of Versailles, Nazi Germany created the "Silent Vouchers", through which Nazi Germany hid its fiscal deficits and bypassed international supervision.

By using history as a mirror, one can understand the rise and fall of powers. Throughout history, across the world, the replacement of dynasties, aside from the wins and losses in warfare, also hides within it the financial context. The chain of evolution "Fiscal deficit - Currency devaluation - Regime collapse" is repeatedly played out.

The United States of the separation of powers

The decline of empires often starts with financial mismanagement. In the past, empires had governments that held all powers including "printing money," "spending," and "regulation." At the beginning of its founding, the United States attempted to change this situation. The United States implemented a political system of "separation of powers," where the three major powers of legislative (Congress), executive (President), and judicial (Federal Courts) are independent and balanced against each other.

In terms of fiscal policy and monetary policy, there is also a reflection of "functional separation of powers." The U.S. Congress passed the Federal Reserve Act in 1913 to prevent the government from abusing its power to issue currency, establishing the Federal Reserve and choosing to delegate the power of coinage to it. Fiscal policy is controlled by Congress, determining "how much money to spend and how to spend it," while government departments are responsible for executing the spending; monetary policy is controlled by the Federal Reserve, determining "how much money to print and how to regulate it," which is not under the control of the president.

Since then, the U.S. government (Treasury Department) holds the power to issue national debt, while the Federal Reserve controls the issuance of currency. Fiscal policy is led by the U.S. Treasury Department, primarily involving taxation, issuing bonds, and spending; monetary policy is led by the Federal Reserve, which macro-manages the economy through adjusting interest rates, buying and selling national debt, and quantitative easing. The two are independent, but occasionally coordinate, in order to prevent the excessive issuance of the dollar and ensure its value.

This mechanism basically realizes the ideals of the founders: finance belongs to the government, currency belongs to the Federal Reserve, mutually restraining each other to prevent "the government from using currency to abuse power."

The gradually uncontrollable U.S. finances

After two world wars, the United States became the only victorious nation. Against the backdrop of globalization, the Bretton Woods system and the petrodollar settlement mechanism subsequently helped the US dollar establish its status as the global reserve currency.

From 1945 to 1971, the gold standard restrained U.S. finances, as government spending was limited to anchor gold reserves, resulting in relatively restrained fiscal policies.

After 1971, the Bretton Woods system ended, the US dollar was no longer pegged to gold, and the US fiscal deficit was no longer subject to substantial constraints, ushering in the era of "fiscal-monetary collusion"—the government issued bonds to spend money, and the Federal Reserve printed money to buy government bonds.

The United States has begun to rely on the cycle of "issuing debt - printing money - global takeovers" to run its fiscal deficit. To date, the expansion of the U.S. fiscal policy has resulted in a national debt exceeding $36 trillion, with an average annual deficit of over $1.5 trillion, and interest expenses on the national debt exceeding $1 trillion, making it one of the largest single items in the federal budget.

The U.S. Treasury is gradually showing signs of losing control, falling into four major dilemmas:

First, debt dependency: the finance can only rely on issuing new debts to roll over old debts, and if interest rates do not drop, it may worsen;

Second, the political compromise syndrome: both parties find it difficult to cut spending, the Democrats want welfare, and the Republicans want tax cuts;

Third, the inertia of the Fed's buying: Although the Federal Reserve appears independent on the surface, in the past, whenever there was a crisis, the Fed would always print money to rescue the finances.

Fourth, the impact of global de-dollarization: More and more countries are choosing to reserve gold and diversify their foreign exchange, leading to increased refinancing pressure on U.S. debt.

Under these four major dilemmas, the U.S. government has an increasingly strong demand for the Federal Reserve to release liquidity. Trump has repeatedly tweeted calls for interest rate cuts, but the Federal Reserve still insists on "the independence of monetary policy."

Trump's new move: On-chain curve minting

The Trump administration is promoting a dollar stablecoin bill. Whether it is the "Stable Act" or the "Genius Act", both allow for the issuance of dollar stablecoins based on U.S. Treasury bonds.

If the stablecoin bill is passed, it would be equivalent to the U.S. government obtaining the "curve minting power." The logic behind the U.S. dollar stablecoin curve minting power is as follows:

1. The U.S. Department of the Treasury has the authority to issue government bonds.

2. Issue US dollar stablecoins backed by government bonds;

3. The dollar stablecoin is exchanged back to dollars, forcing the Federal Reserve's monetary policy.

The U.S. government can indirectly seize the minting rights of digital dollars and intervene in the independence of the Federal Reserve's monetary policy through the path of "Treasury bonds - dollar stablecoins - dollars."

In a sense, this could become a "hunt" by the U.S. government on the Federal Reserve.

Trump has said in several speeches that he will abandon CBDCs (central bank digital currencies) and will support dollar stablecoins. Many people don't understand the difference between the two: CBDCs are issued by the central bank (the Federal Reserve), and to put it bluntly, the minting power is still in the hands of the Federal Reserve; The U.S. dollar stablecoin allows commercial companies, banks and other entities to issue it, but the underlying collateral assets are U.S. bonds, which are issued by the U.S. Treasury. As a result, CBDCs strengthen the Fed's authority, and USD stablecoins strengthen the Treasury Department's authority.

From the operations of the Trump administration, there is suspicion of "seizing the power of coinage."

By the way. In fact, the U.S. Treasury could also mint coins. The U.S. minting power is divided into two parts: paper dollars are issued by the Federal Reserve, while coins are issued by the "Mint" under the Treasury Department. In the past, some have suggested that the Treasury could mint a few platinum coins with a denomination of 1 trillion dollars, deposit them into the Federal Reserve account, and use them directly to pay off debts or cover expenditures. This was an early idea of seizing the minting power. The White House vetoed such ideas because it would raise market concerns about the credibility of the dollar.

For more extended questions, let's see ChatGPT's answer:

1. Will the U.S. government really seize the power of minting?

ChatGPT answers: Not "will", but "in progress". As permitted by the Constitution, Congress has the right to mint money; There is political will, Trump openly opposes CBDCs, supports dollar stablecoins; There is fiscal demand, the deficit persists, and the high interest rate is unacceptable; There is a plan for landing, and the mortgage treasury bonds are used to mint stablecoins on the chain; The law has a basis, and the stablecoin bill is advancing. Therefore, the key is whether the government can legitimize and institutionalize this "soft coup" through the on-chain monetary mechanism, and be recognized by the global market.

2. Will it cause instability in the US dollar?

ChatGPT answered: In the short term, no, stablecoins are anchored to government bonds and commercial bank deposits, and the Federal Reserve still controls the interest rate anchor; in the medium to long term, it may shake the dollar's credit structure, especially when the Treasury bypasses the Fed and continues to expand on-chain dollars, the value anchor of the dollar will no longer solely rely on the Fed's control. If in the future Bitcoin, gold, and other assets are introduced as reserves anchoring stablecoins, it will be the prototype of a "new Bretton Woods system."