Nik Bhatia on Bitcoin and the Case for Using Stablecoins for Statecraft

**David Beckworth** (0:02)
Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow with the Mercatus Center at George Mason University. I'm glad you decided to join us.
Our guest today is Nik Bhatia. Nik is the author of a new paper titled, Stable Coins as Statecraft, Reclaiming US Financial Sovereignty in the Euro-dollar Market. It's an interesting paper that makes the case for stable coins as a role in US monetary sovereignty and reclaiming the Euro-dollar market abroad. Nik, welcome to the program.

**Nik Bhatia** (0:50)
Thanks, David. Great to be here.

**David Beckworth** (0:52)
It's great to have you on. Now, you are a visiting fellow at the Bitcoin Policy Institute. You also are the founder of the Bitcoin Layer. You're also a professor, an adjunct professor at the University of Southern California, Marshall School of Business.
You've written this working paper for the Bitcoin Policy Institute. Again, as I mentioned, this paper explains how stable coins can be used to reclaim some of the government control of the Euro-dollar market. Maybe that's too strong of a term, to bring them back into the regulatory perimeter of the US government. And I guess, Nik, this is the first question out the gate. That's a little surprising to see the Bitcoin Policy Institute have a paper on how to get the Euro-dollar market within the regulatory perimeter. So tell me about the backstory of this paper, what motivated you to write it, and why BPI got behind it?

**Nik Bhatia** (1:50)
It's a great question, David. The origin of this paper comes from years of research into the Euro-dollar system. So I'll just give you a brief history. I was a treasuries trader.
That's my career background. I traded treasuries for large institutional asset manager, and I was trading cash treasuries, treasury futures, other interest rate derivatives. And so global macro, monetary policy, the Fed, and US treasury rates are my core competency. That's my background. That's what I studied. That's where I come from. So along that path, I became a Bitcoiner. And the year was about 2016
And so I have two worlds here. One as a traditional finance treasuries trader, and the other as this new school Bitcoin researcher.
And my career over the past decade, has blended these two worlds together. Now, I wrote two books, published one in the year 2021 called Layered Money, and a book I published last year called Bitcoin Age. Layered Money is an overview of money, a 1000 year brief history of money, and a light introduction to Bitcoin, and a historical background for why Bitcoin is appropriately called digital gold. That's the purpose of Layered Money. Bitcoin Age, my second book, is much more of a deep dive into the history of Bitcoin, its origin story, the technology origins, where it comes from. Each of these two books, David, contain heavy sections on the Eurodollar and the Eurodollar system, the offshore dollar system. The reason is because the offshore dollar system has taken a sovereign currency, the US dollar, and turned it into a global banking instrument that's outside of the regulatory perimeter of the United States. Therefore, it's my working thesis for the last five years that the dollar system is not a United States system.
It is a global system. I think it's very hard to argue that at a high level, you can nitpick it all you want, that the US Treasury controls the banking system, the Fed regulates the US banks, also the Treasury and the Fed work together to implement Basel regulations which come from Bank for International Settlements in Switzerland. So, there's a blend of domestic and international regulation and guidance on the banking system. However, it is clear to me that the dollar system is a global banking system and instrument, and it's not entirely controlled by the United States government. This is quite different than the concept of a sovereign currency and quite different than how currencies operate around the world, where those countries and governments have control over the issuance of their currency. Now, the issuance of dollars in the offshore dollar system is allowed by the system. It means that the United States regulators, they don't control what a European bank lends into the market in dollar-denominated terms. Those loans, Euro-dollar loans are extensions of credit that are outside of the regulatory perimeter. So that concept is something that I feel is critical to understanding how our system works. It's also critical to understanding the 2007 to 2009 great financial crisis, the initiation of central bank swap lines, December 2007, several months before the fall of Bear and Lehman, and the 2023, also 2020 and 2023, financial crises around the pandemic and the mini one in 2023 around Silicon Valley Bank and Credit Suisse. We see the central bank swap lines being extended from the Fed to international system because there is an enormous stock of Euro-dollar liabilities outside of the United States that if it crumbles, breaks the whole system down. That is a risk to the country. It's a risk to the global financial system. It's a reality that I don't think gets enough air time.