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A year ago, Stephen Miran, the former chair of the Council of Economic Advisers under US President Donald Trump and now a Federal Reserve governor, wrote a paper that caused a frisson in the financial markets.
Miran suggested, in a spirit of Socratic debate, that Trump could use tariffs and a “Mar-a-Lago” currency accord to bolster American dominance — an idea which provoked horror among progressives and free-market economists alike.
Twelve months on, Trump has obviously embraced tariffs. And while the Mar-a-Lago currency vision has faded from view, Miran is now tossing out new ideas — and his opponents should take note. For he thinks we are about to see a notable shift in financial flows that could affect dollar usage and interest rates. Call this, if you like, a new chapter in geofinance — or American financial imperialism.
The crucial issue is stablecoins, or cryptocurrencies backed by other assets. Until recently, many financiers dismissed these as a sideshow or, worse, a criminal tool. No wonder: Tether, the largest stablecoin issuer, has previously faced legal censure. However the Trump administration has backed stablecoins. Not uncoincidentally, Howard Lutnick, commerce secretary, has ties to Tether. And Congress recently adopted a stablecoin regulatory framework, the Genius Act.
The Treasury department is now turning this into rules, sparking behind-the-scenes battles. Many industry players want to create yield-bearing stablecoins. However, US bank chiefs, like their UK counterparts, are fiercely opposed, since it might suck away their deposits, as the Treasury Bond Advisory Committee has acknowledged.
I expect the banks to win. And Miran seems to agree: he told the UK Cambridge Judge Business School this week that demand for stablecoins will probably stay muted inside the US, if these do not offer yields. “I expect most of the uptake [for stablecoins],” he observed, “to come from places where they can’t access dollar instruments” — like many emerging markets.
However, even with these constraints, players such as Standard Chartered predict that the stablecoin sector will grow from $280bn to $2tn by 2028, while Treasury secretary Scott Bessent projects $3tn by 2030. And since the Genius Act requires “100 per cent reserve backing with liquid assets”, this will create new demand for dollar bonds.
Indeed Miran predicts that what he calls a future “global stablecoin glut” will bolster this demand on a scale that is comparable to the Fed’s recent quantitative easing programmes. “[This] could put as much as 40 basis points of downward pressure on [US] interest rates”, he concludes, noting that the shift could also equate to one-third (or more) of the global “savings glut” that former Fed chair Ben Bernanke described in 2005 (and which poured into dollar assets and pushed down interest rates).
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This is a markedly different future from the one outlined earlier this year by Isabel Schnabel, a member of the executive board of the European Central Bank, who fears “that we are transitioning from a global “savings glut” towards a global “bond glut”, where excess western debt raises long-term costs. And critics might challenge Miran’s optimism on rates.
But a recent IMF report notes that in late 2024 — ie before Trump’s return to the White House — the two largest stablecoins, Tether and Circle, already held more Treasuries than either Saudi Arabia or Germany, and had almost eclipsed Norway. Since then, their holdings have probably surged.
This, in turn, has implications for the greenback. Since Trump took office, speculation about de-dollarisation has swelled due to sky-high US debt and geopolitical fracture. But Miran told Judge that the adoption of dollar stablecoins in emerging markets could “advocate against this de-dollarisation hype”. Or as Marina Azzimonti and Vincenzo Quadrini, two economists, recently noted: “The exorbitant privilege of the dollar will be reinforced by the growth of Stablecoins.”
If so, this would obviously delight Trump. It might also horrify other nations. “For the rest of the world, including Europe, wide adoption of US dollar stablecoins for payment purposes would be equivalent to the privatization of seigniorage by global actors,” notes Hélène Rey, an economist, who fears rising “tax evasion” and “lower demand for non-US government bonds”.
To put it another way, Schnabel’s prediction of a “bond glut” might turn out to be correct — but only for non-US bonds. The embrace of stablecoins could leave Europe or many emerging markets newly vulnerable.
Will this happen? Trump critics might think, or hope, not. And some economists are apt to dismiss Miran as a political acolyte of the president, particularly since he has recently called for much lower US interest rates.
But I, for one, think the latter criticism is wrong. Miran’s analysis reflects his strongly held intellectual framework and curiosity, not just political expediency. And the key point is that Trump’s team wants to bolster US financial hegemony in a world of geoeconomic upheaval. So love or hate Miran’s new predictions, investors ignore them at their peril — whatever does (or does not) happen with that putative Mar-a-Lago accord.
gillian.tett@ft.com
