344. Can Stablecoins Save the Dollar?

Saifedean Ammous (0:00)

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Hello, and welcome to The Bitcoin Standard Podcast. Today I'm going to be discussing the topic of stablecoins and the impact they have on the dollar. This topic is something that I have been researching and thinking about for more than a year now. I first made a presentation about it at the Bitcoin Conference last year, and I have done more research on it, and I may consider expanding this into a longer paper at some point, but I thought it would be a great topic to discuss in this podcast, so I can share my initial ideas with my listeners and hopefully get some feedback on it. So if you do have any feedback on this, please do let me know either by commenting in the sub stack or on Twitter or by joining my weekly seminars where we discuss my work, Bitcoin, Austrian economics and so much more with members of my website. Go to saifedean.com and you can become a member and join in our weekly live discussion seminars. So for today's topic, I'm going to be discussing what the impact of stablecoins is likely to be for the US dollar. US Treasury Secretary Scott Bissent has made an ambitious case for dollar stablecoins. He argues they will go beyond providing financial inclusion to the unbank and will buttress the dollar status as the global reserve currency while producing a surge in demand for US Treasury. It's an attractive narrative to people in the fiat system who like the idea of the dollar being strengthened and to people in the crypto industry since it makes them look like they are not hostile to the dollar and the US government and it is used to popularize crypto and seek better regulatory treatment for it. While seemingly this is compelling at face value, looking more closely at the mechanics and numbers leaves plenty of room for skepticism.

Now to begin with, I'll say I used to be very skeptical that stablecoins could work. I always assumed they would be shut down. In fact, when I look back at the Bitcoin Standard, my first book, I would say that the stablecoin are the one prediction from the book that has not held up well over the past eight years. I had written off all applications of blockchain technology, essentially saying that they would all fall apart. All of the database gambling, real estate records and all of the other silliness that was dominating discussion in this space between around 2014 to 2018 or so. And indeed, all of that has failed. Nobody is using blockchain technology for gambling and real estate records and so on. And I made an argument, which at that time was really out there, which is that the only workable application of a blockchain is to move a token. It's to have digital cash.

And if that token doesn't have its independent monetary policy, then it is not going to work. The blockchain is not going to work if the token's supply can be altered by somebody easily. So that for me basically made it so that no other blockchain could work other than Bitcoin. The one exception to that would be the US dollar, where the value of the token would be pegged to the US dollar, and essentially the issuer of the stable coin would be a centralized entity. And in my mind that would just be trivial to shut down because governments are not going to let it compete with their banking system. And yet somehow governments have not shut down stable coins. Somehow they seem to have achieved exit velocity, at least until now. Regulators have let them grow, and they have grown now enough to become big enough of a demand for treasuries that the US government is warming to them, and it is openly discussing them as a way to increase the demand for US government debt. So now let's take a look at the bullish case for stable coins. What are the attractions of the stable coin technology? What are the good things that it can offer the world? The first one is that it offers a lot of people financial inclusion. A lot of people live in places where they can't have banking apps, they can't have access to banking accounts, they can't make international payments because they don't have access to financial institutions, or their financial institution access is severely restricted and limited and censored. Stable coins can help people like that. Secondly, perhaps more importantly, is inflation protection. It allows people who live in countries where the inflation rate is high to use the US dollar whose inflation rate is among the lowest of all national currencies. It's the one whose supply increases at the lowest rate usually, or one of the ones with the lowest rates. And that is an enormous improvement over the vast majority of currencies in the world. The vast majority of currencies that people use around the world today grow in their supply at much higher rates than the US dollar. So this is also a huge advantage that stable coins can offer. And I think this is something that is true and substantial. The third bullish case for stable coins, or the third killer app if you want of stable coins, is the idea that it can help dollar dominance and US fiscal solvency. Now I think one and two are real. They are very real and they are something that I have seen by myself all over the world. A lot of people in places like Syria, Venezuela, Gaza are able to use USDT and stable coins. And it's a real life saver for them, it makes a huge difference. So I've definitely changed my mind on there not being any kind of use for stable coins. They've been around for more than 10 years now, and millions of people around the world are making good use of them. So I'm not here to dispute that, but I will look more closely at the third point, which is dollar dominance and fiscal solvency. So what does that mean? What do we mean by dollar dominance? A lot of people use the terminology, but it's not entirely accurate what this refers to exactly.