Name: The ideology behind the US policy on crypto and digital money | DW News
Uploaded: 2025-12-13T17:03:23.000Z
Duration: 13 min 1 s
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There is a battlefield of ideas about what money is, and

様態の副詞

the United States is uniquely positioned to dominate this race.

But to understand how this fight will play out over digital currencies, we need to take a look at the ideas that will shape this confrontation.

This story begins at a time when money in the United States worked quite differently than it does today.

So this is in the mid-1800s in the US before the Civil War.

A lot of banks issued their own private banknotes that were backed by state bonds.

And the rules of those backing were a little different everywhere.

And so you had many different banks with their own banknotes.

It's a system sometimes called free banking, and it resurfaces in Project 2025.

That's a document published in 2023 by the conservative US think tank Heritage foundation.

And it's widely regarded as a blueprint for Donald Trump's second term in office.

Out of the nearly 900 pages address the Federal Reserve.

Yet they paint a picture of how the administration's thought leaders think about money.

Private companies should be able to deal with currencies with as little government interference as possible.

There's a strange connection between this 19th century idea and today's world.

For years, the crypto world has expanded as a speculative asset class, buyers of digital tokens could profit if they later sold them at a higher price.

But when it comes to making payments in crypto, it helps to have something that holds its value more steadily.

They are crypto tokens issued by private companies.

For each coin minted, the issuer deposits an equivalent amount of US Dollars or government bonds into a bank account to maintain a one to one peg.

Like in the free banking era with stablecoins, private companies issue a form of money.

So the key question, or the key concern from free banking era is that privately issued money may not respect singularity or singleness, which is that a dollar is seen as being worth the same by everybo.

And this singleness came under threat, for example, when somebody took a note issued by the bank of Tennessee to Philadelphia, its price wouldn't be the same at all times.

Similarly, today stablecoins aim to be stable in their price.

But the market can test that commitment to a one to one peg, because the crypto tokens just don't have the same public backing yet as currency does.

To begin to solve that problem, in July 2025, the United States passed its first ever law to regulate stablecoins.

It sets out, for example, which assets stablecoin issuers have to hold as collateral US dollar backed stablecoins collateralized with treasury bills could create a substantial new buyer for U.S.

And I think equally as important, it can lock in dollar dominance.

Over history, there's been a series of events that have kept the US as a reserve currency.

And I think passing this important stablecoin legislation could be that event for the 2020s.

People around the world now use stablecoins to send money internationally.

In Turkey, where inflation is rampant and exchange rates unstable stablecoins provide ordinary people with a simple way to obtain dollar like assets on the Internet.

In Latin America, stablecoin usage amounts to nearly 8% of GDP.

And the more people buy dollar backed stablecoins, the more money globally is pumped into the dollar and the more the world saves in dollars, the cheaper it will be for the US government to fund itself.

And that's what's called exorbitant privilege.

And stablecoins are going to really help with that if they do take off.

It's one of those battlefields of money that will play out in the future.

But to dig deeper into how that confrontation will play out, we need to get back to its ideological base.

Project 2025 establishes that a free banking system, one in which only private companies interact with each other, would make it possible to abolish the Federal Reserve, the bank that has the blessing of the government.

But if abolishing it is unfeasible, the blueprint suggests other actions.

One in particular stands out to get there, let's briefly recap how banking works.

So let's say someone says, I need a loan and I need it in dollars.

And the bank says, okay, here's your loan, here's your dollars.

They put two entries on their balance sheet.

One is the loan, which is an asset of the bank.

And it's an asset because the company's going to be paying them over the next five years, let's say.

But at the same time they create a liability which is a deposit account, which means which the company their client can spend can transfer to another bank.

To anybody, this is creation of money from thin air.

It's flexible and it leaves the day to day business to private banks while the central bank handles higher level matters.

But if that system gets stretched, how does a thing like this ever start?

What happens to a bank if everyone wants their deposits at the same time, are they just going to go bankrupt and go away?

Or that would be bad because this is the infrastructure of our whole market economy.

So the central bank can step in and do its own alchemy on its own balance sheet.

You know, that's what lender of last resort is, is making loans to banks exactly that same way that I just talked to you about, but

That's lower level in the system because the liability of the central bank is better money than the liability of a commercial bank.

Being loans the money create during a lender of last resort operation is repaid once the term ends, removing all of the balance sheet entries in the process.

Project 2025 suggests limiting that function, arguing its excessive use in the past led to reckless lending by banks.

But curtailing that function could have ramifications worldwide.

To understand how this will shape financial battlegrounds of the future, we need to travel back in time.

This part of the story starts in the 1940s in London.

The city had experience managing international money because it had run the colonial pound system.

But after the British currency lost its global reach, bankers shifted to running a similar system with dollars.

And that system works just like it does within the United States.

When a company goes to a bank in London for a dollar loan, the same balance sheet mechanics that occur inside the United States take place there and today in other financial worldwide as well.

And it's creation of money of dollars offshore that has nothing whatsoever to do with the Fed or the treasury or any American bank.

The thing is, today this offshore world is much bigger than the onshore dollar world.

US and non US banks have increased the amount of dollars they book outside of the US that is offshore massively over time.

For example, this offshore world includes a loan from a London bank to a Brazilian company or US dollar bonds issued by a Korean firm and now held by a company in Singapore.

The immense domain of offshore money is what makes the dollar special and a key aspect of its dominance.

No other currency rivals it in this regard.

But what if an offshore actor faces the same problem as onshore?

A bank in London can't turn to the US central bank for a lender of last resort backstop.

On the eve of the global financial crisis, then Fed chair Bernanke called the Federal Reserve's decision making body for an extraordinary meeting.

Since the summer, European banks had begun facing difficulties with their offshore dollars.

And he wanted his colleagues approval for a new tool.

Bernanke wanted the Fed to be able to help out offshore as it would onshore.

The idea was that the Fed would create additional dollars, the European Central bank would create additional euros, the two central banks would swap them, and

the ECB would lend those dollars on to European banks in dire need.

Since then, the so called swapline network has stabilized large parts of the offshore dollar market by acting as an international lender of last resort.

But only a select few central banks enjoy this backing on a permanent basis.

Since 2008, the volume of US assets circulating outside of the United States has grown.

And offshore markets backstopped by those Federal Reserve swap lines have seen a notable rise in U.S.

@ the onset of the COVID pandemic, these global markets once again panicked.

As markets froze in March, again a form of singleness came under threat.

Onshore and offshore dollars were deviating in price from each other.

And the Fed again backstopped offshore dollar markets, cooperating with some central banks of politically aligned countries temporarily while maintaining unlimited support through SEL banks picked by the Federal Reserve.

But two major offshore dollar markets never received a dollar swap, China and Taiwan, likely for political reasons.

This means the US decides which dollar markets it will backstop and which it will not.

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The ideology behind the US policy on crypto and digital money | DW News

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