Former Speaker of the House of Representatives Stablecoins Can Help the United States Avoid a Debt Crisis

Author: Paul D. Ryan, former Speaker of the United States House of Representatives and member of the Paradigm Policy Council.
Translated by: Luffy, Foresight News
The United States is facing a critical crossroads in its economic and social experiment, which is most evident in the national debt. The country is heading towards a predictable yet avoidable debt crisis. Without taking action, the economy will stagnate, and the government’s commitments to healthcare and retirement security will fall short. Even more concerning is the potential danger posed by cuts in defense spending.
As the fiscal crisis becomes increasingly pronounced and viable solutions remain elusive, the crisis may start with failed government bond auctions, leading to significant adjustments in the fiscal budget. With economic contraction, the US dollar will suffer a significant credit shock, further endangering prospects for economic growth. The obvious answer is to address the root causes of these issues. Welfare programs are driving factors of debt and need reform, but politicians lack the courage to do what needs to be done. As a result, the country is on a dangerous path. What can we do?
Perhaps we should consider stablecoins seriously. According to data from the US Treasury and the cryptocurrency analysis website DeFiLlama, USD-backed stablecoins are becoming significant net buyers of US government debt. If we consider the issuers of fiat-backed USD stablecoins as a country, they rank just after the top 10 holders of US Treasury bonds – smaller than Hong Kong but larger than Saudi Arabia. If this industry continues to grow, stablecoins could become one of the largest buyers of US government debt.
The emergence of stablecoins as a mechanism to promote the US dollar comes at an opportune time. The US benefits greatly from the status of the US dollar as the primary international reserve currency. Its advantages include providing cheap, reliable financing for fiscal expenditures and exerting significant influence on the global financial system. Due to the dominance of the US dollar, most financial activities ultimately pass through US banks. As the global economy becomes more digitized and multipolar, the dominance of the US dollar is continuously under threat.
China understands what is happening. Financial authorities in Beijing have identified digital currencies as a cornerstone of the country’s international development strategy and foreign policy. The Chinese government is leveraging investments in physical and digital infrastructure in emerging markets, along with financial engineering, to embed the Renminbi in networks it can control to exert influence. The US cannot ignore its biggest international competitor tapping into the potential demand for secure and convenient digital currencies. The framework for understanding how the US dollar gains power needs to be updated as the world changes.
An example illustrates the driving factors behind the dominance of the US dollar. Suppose a Japanese company sells products or services to customers in Wisconsin. How does the company handle the US dollars received? Since the early 1970s, the company can invest in the vast, liquid US Treasury market. The most attractive aspect is that US Treasury bonds are backed by the world’s most dynamic economy. After all, US government debt represents claims on future output of the US economy.
Setting aside the issue of growing US government debt, the fact that Uncle Sam can continue to sell debt at low rates in the international market demonstrates an important point: other countries’ demand for the US dollar is insatiable. However, signs indicate that this situation may be changing rapidly.
Countries such as China and Saudi Arabia, historically large buyers of US debt, are gradually exiting the market. They are increasingly seeking payment settlement methods outside of the US dollar system. At the same time, the US government faces an increasing risk of failed debt auctions, a terrifying future that would disrupt markets and severely damage the US’s reputation.
If other countries successfully enhance the influence of their own currencies while selling off US Treasury bonds, the US will need to find new ways to boost the attractiveness of the US dollar. USD-backed stablecoins are one of the answers.
Most stablecoin holders come from economically weaker countries looking for “higher quality” funding. As described by former chairman of the Commodity Futures Trading Commission Timothy G. Massad in a recent research paper at the Brookings Institution, stablecoins are akin to Eurodollars that promoted the US dollar’s dominance during the Cold War.
Promoting USD-backed stablecoins will follow a familiar path and bring significant short-term benefits. This move will durably increase demand for US debt, reducing the risk of failed debt auctions and debt crises. Unlike China’s digital financial infrastructure, USD-backed stablecoins issued on public, permissionless blockchains embody America’s longstanding values of freedom and openness.
A sound and predictable regulatory framework for stablecoins has bipartisan support in Congress and will help significantly expand the use of digital dollars at critical moments. In an election year, considering all the impending political chaos, we need a victory like this to strengthen confidence in the financial markets.