Michael Hudson: US Cryptocurrency as an Offshore Banking Center

Yves here. While Hudson outlines a telling proposal by the super neoliberal American Enterprise Institute, it’s important to describe how it is based on major misperceptions. The first is that the US needs to sell bonds to fund its operations. No less than both Alan Greenspan and Ben Bernanke have said otherwise. The Bank of England has entire primers that similarly describe how funding and money creation work, and they make clear that these activities do not depend on debt issuance. A country that creates its own currency cannot involuntarily default. It can always (like the Lannisters) pay its debts. It can engage in too much net spending (as in run overly large budget deficits) and create high levels of inflation.

Second is that, as outlined in considerable detail in Nicholas Shaxxon’s Treasure Islands, the US already has the biggest “offshore” banking center, via the Caymans, Wyoming limited liability companies, and other tax secrecy jurisdictions in the US banking umbrella, even as of his writing larger than UK tax havens such as the Isle of Man.

Third is that stablecoins are generally a scam, since the promoters cannot resist the temptation to increase their profits via insufficient collateralization of their coins.

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is The Destiny of Civilization.

The Wall Street Journal ran a revealing op-ed today (June 14, 2024) by Paul D. Ryan, “Crypto Could Stave off a U.S. Debt Crisis.”

Mr. Ryan, libertarian Republican House Speaker 2015-2019 and now at the right-wing American Enterprise Institute, writes that: “Stablecoins backed by dollars provide demand for U.S. public debt and a way to keep up with China.”

He reports that “According to the Treasury Department and DeFi Llama, a cryptocurrency analytics site, dollar-based stablecoins are becoming an important net purchaser of U.S. government debt.” If the stablecoin fund was a country, it would be in “the top ten of countries holding Treasuries – smaller than Hong Kong but larger than Saudi Arabia.” So the result of officially promoting them “would be an immediate, durable increase in demand for U.S. debt.”

Ryan says that “bipartisan support in Congress … would help dramatically expand the use of digital dollars at a given critical time.”

Here’s the real logic. I’ve written before about how c. 1966 or ’67, I was Chase Manhattan’s balance-of-payments economist, and a bank officer, apparently having joined from the State Dept., asked me to review a memo proposing to make the United States “the new Switzerland,” that is, a haven for the world’s drug money and other criminal money laundering, for kleptocrats and tax evaders in order to help stem the U.S. balance-of-payments deficit that resulted entirely from foreign military spending in Southeast Asia and elsewhere around the world.

Today, as foreign countries de-dollarize their trade – for instance, when Russia and China trade for oil and industrial products in each others’ currencies – U.S. financial strategists worry about what this will mean for the dollar’s exchange rate.

Actually, transacting such foreign trade in non-dollar currencies has no effect on the U.S. balance of payments. It does not appear in the trade balance or even in foreign investment, although de-dollarization may deprive U.S. banks of currency-trading commissions to handle such transactions.

What does affect the demand for dollars is conversion of assets denominated in foreign currency into the dollar. This king of confidential banking is what pressed up the Swiss franc so much in the 1970s and ‘80s that it priced Swiss manufactures out of foreign markets. Companies like Ciba-Geigy had to move their production across the border to Germany to prevent the rising franc’s valuation from making them uncompetitive. (When that company brought me over in 1976, I found that the price of a coke was over $10, and a regular meal cost $100.)

The U.S. is seeking to protect the dollar’s high value, not lower it, so it sees acting as the destination for world’s tax avoiders, criminals and others as a positive national strategy. (“Kleptocracy is us.”) The plan is not to condemn tax crime and more violent criminal activities, but seeking to profit for being the banker for these functions. The logic is, “As the world’s leading free-market democracy, we’re providing a secure for the world’s capital, however it may be ‘earned’ or otherwise obtained.”

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  1. Yaiyen

    So all the talk about getting tough on tax avoidance was fake. I have a feeling the reason Biden was hiring new IRS gents was to go after average people. TYT was even praising Biden for hiring more IRS agents lol when the only reason he needed new people was because he passed bill where you have report over 500 dollar earnings like example from paypal

    1. djrichard

      I think Michael Hudson was referring to tax avoidance in other countries and having the US avail itself to their efforts so as to help the balance of payments.

      But I think otherwise what you say is true even for our home grown tax avoidance. Putting aside that those who engage in tax avoidance are likely the true constituency of our elected officials, one can imagine other “organic” benefits. For instance, at the end of the day I don’t think they operate any differently than a non-profit. Like a non-profit, it’s back office is focused on getting a yield on its asset base. It’s just that in this case, the front-office to the non-profit is to be a tax shelter. But ignoring that, the Fed Gov loves non-profits. Anything that stimulates demand. Anything that stimulates growth.

    2. spud

      that is exactly what i said a few years back. the little people will be terrorized by the IRS, not the rich.

      be prepared, a VAT tax is coming, cuts or elimination of social security and medicare are on the horizon, and a three stooges industrial policy, and it still will not stem the slide to third world status that started in earnest in 1993.

      1. iread

        By far the biggest rise on my most recent monthly invoice was something
        called administrative costs, not state, federal, or sales.

  2. The Rev Kev

    I can see three factors at work with these proposed ShonkyCoins. The first is that like any product, there has to be supply and demand so here I can see that the US will “encourage” the EU to buy these Coins. I do not know if it will go so far as for the IMF to demand settlement of debts in StableCoins but there will have to be a lot of artificial demand that will be created to justify these Coins.

    The second factor is if it will be fully backed by the US dollar as StableCoins already have experienced one fiasco here. ‘The most popular stablecoin, Tether, initially claimed to be fully backed by fiat currency; this was proven to be untrue, and Tether was fined $41 million by the Commodity Futures Trading Commission for deceiving consumers. Instead, Tether only had enough fiat reserve to guarantee 27.6% of their stablecoin. Nevertheless, Tether still remains widely used.’ So it will have to prove that it is 100% backed.

    The third factor may be connected with the exchange rate. I do not know if these Coins will be issued by the US Treasury or some corporation but I assume that there will be a 1-for-1 exchange rate. The problem is that there is no guarantee that late one night that there might be a 25% drop in the exchange rate leaving owners seriously out of pocket. You can’t do that with bonds but you will be able to with these Coins. Something to think about.

    1. Victor Sciamarelli

      You may be correct but I think you’re missing how Prof Hudson debunks Paul Ryan’s Op-ed. Consider rereading two paragraphs beginning with “Here’s the real logic…” and “The U.S. is seeking to protect…”

    2. Acacia

      My understanding, albeit limited, is that these are not “proposed” but rather actual existing ShonkyCoins. There is demand because there is greed. The second factor you raise has been an issue, but I take it the putative “solution” now on offer is greater transparency about the tokens (USDT has not been that), and supposedly the new ETFs were approved on that basis. But USDT still has almost 70% of the stablecoin market, so shonky carries the day. For the third factor, the stablecoins are being offered by private companies, and they are supposed to be pinned to USD. As you say, exchange rates change, but I take it that is a danger with any sort of FX trading.

      Regarding the original article, I wasn’t clear on why “stablecoins are becoming an important net purchaser of U.S. government debt”, but this article over at KITCO helped to clarify a little:


      IIUC, the demand for USian bonds is essentially because interest rates are high.

      As for when the Fed will actually lower rates, the CME prediction markets are now at 90% that nothing will change at the July FOMC meeting, and increasingly confident that there may be no real change at the September meeting as well. That will be the last FOMC meeting before the election, which would mean no love for Biden from JPowell, I guess.

  3. Mikel

    I never bought crypto’s origin story. It accelerated after the GFC, but not for the high-minded reasons used in its marketing.
    It’s another shady financial product coming out of an era of too much easy money. That was the fuel, not something crypto was an answer to.

    1. Anon

      More experienced minds are welcome to deconstruct this perception, but I see the crypto wasteland as a sponge to soak up and destroy excess value… albeit by conning the little people, and sidestepping politically inconvenient taxation.

      It’s curious, that these are not “assets” as they have no intrinsic value or use (yet are treated as such)… but their immaterial nature makes them virtually indestructible, with near infinite fungibility… so ‘line goes down’, but when it does, there is no failing organization to dissolve, and so long as there’s even a penny in the machine, line go back up.

      It’s a virtual asset bubble which could, theoretically, be ‘employed’ in the way the housing market, or the stock market, or the fx markets are employed… only with far more dynamic, granular control, literally no ceiling, and even further divorced from its consequences, than it is from real value. It’s a perpetually reinflatable, derivative, false profit machine…

      And these are the ultimate derivatives. At once ludicrous, and profound in their destruction. The technology is meant to quantize (and thereby redefine) existence (think, “there is no society”)… so that a house will be fungible, rainforests will be fungible, perhaps your person could become fungible (as marketers already bid for your attention and purchase your data).

      I suppose my take depends on your perception of asset bubbles and if they have a ‘function’, but I see the crypto casino as the logical extension of neoliberal finance (grift); as the potent amalgamation of finance’s worst characteristics in the current configuration.

  4. furnace

    Hey Yves, can you point me towards these pieces by Bernanke/Greenspan and/or the Bank of England, or any other good literature on the subject? I’m very interested in the question of debt.

      1. JonnyJames

        Thank you as well, I had the BoE links bookmarked from seeing them here on NC months ago, I can’t recall exactly. I also learned bout the BoE papers from a Steve Keen interview as well. I had not seen the one from St. Louis Fed

    1. Yves Smith Post author

      You readers are great. Thanks for pitching in.

      With search being what it is, it is much harder to track down substantiation thqn it ought to be (unless I can find it in NC archives :-))

      1. Mickey Hickey

        Look up transubstantiation a word all 14 y.o. in Ireland learned 60 years or so ago in Ireland. They also took Latin and Greek the latter of which made a lot of untaxed income for me back in the day.

  5. ex-PFC Chuck


    “. . it’s important to describe it is based on major misperceptions. The first is that the US needs to sell bonds to fund its operations.

    I’ve learned enough about MMT to know this is functionally true for a sovereign country that has a fiat currency. However, is it embedded in US law somewhere that bonds must be sold to cover a deficit? Or is it a matter of institutional habit – we’ve been doing it since the founding so we just keep doing it? Or could the President, Secretary of the Treasury or some such just decide stop doing it?
    Now back to reading the post.

    1. Yves Smith Post author

      Thanks. I was writing in haste and failed to add “So why do we behave otherwise?”. It’s a political holdover from the gold standard days. Unfortunately, pretty much every pol and most voters also believe in the model that applies to states and municipalities and households, that we have to balance the budget (at least over time) and would be extremely resistant to change the practice.

      Operationally, the Fed debits its account at Treasury, usually before bonds are issued and the Treasury sells bonds on a schedule.

      1. djrichard

        Yves, the suggestion is that otherwise the Fed Gov would be able to engage in unsterilized spending, right? That is, the Fed Gov could actually increase the float of currency, hence increasing M1, M2, M3, right? Asking as a non-MMTer.

        For me I think in terms of the Fed Gov’s balance sheet. The Fed Gov can’t let its balance sheet go negative. Perhaps that is the “holdover”? I think this is why I never converted over to MMT. Because unless somebody can figure out a way to violate that and allow the Fed Gov to go to a negative balance sheet, then we might as well have a balance sheet theory of the Fed Gov, rather than what MMT has come up with.

        Which is not to say that I am not on board with what the MMTers are trying to do. Which is to change the mindset about public debt. i.e. in it’s glibbest (glibbiest?) form, “the deficit doesn’t matter”. And neither does the interest on Fed Gov debt I would add, at least not to the Fed Gov. But this can be explained from a balance sheet perspective too.

          1. djrichard

            Thanks. This has got me started looking at related papers too. I want to drill into this topic at a somewhat leisurely pace. Is there an MMT forum that is good for this topic in general? A forum where I can ask questions? Thanks!

            1. Grebo

              I’m not aware of any forum I’m afraid. Apart from the books (Mosler, Mitchell, Wray, Kelton) good sources are billy blog, Levy Institute.

              Steve Keen ploughs his own furrow but he has done a number of videos on MMT focusing on the accounting which can be found on youtube.

          2. GrimUpNorth

            I saw a post on here a few days ago, that implied that the government must increase public debt, if it has a trade deficit, because the surplus country needs somewhere to put its excess currency into (ie government bonds). This seems obvious in a double entry book keeping system

  6. Acacia

    Seen on X/Twitler:

    “Some people look at the $1.7 trillion that Paul Ryan helped add to the national debt with the unfunded 2017 tax cut and see a problem.”

  7. Ron Singer

    The plan is not to condemn tax crime and more violent criminal activities, but seeking to profit for being the banker for these functions.

    That’s one way to reduce the crime rate and cash in: legalize crime. One could wonder if Ryan and his mafiosi, er, clients are already well-positioned to exploit such a change in policy: if it’s profitable it shouldn’t be illegal and the victims can safely be ignored, like armed robbery except you use laws instead of guns. This approach naturally has a long and distinguished history:

    Hundreds of laws of Congress and the state legislatures are in the interest of these men and against the interests of working men. These need to be exposed and repealed. All laws on corporations, on taxation, on trusts, wills, descent, and the like, need examination and extensive change.
    – Rutherford B. Hayes

    To quote Max Liebermann,
    “Ich kann gar nicht soviel fressen, wie ich kotzen möchte.” – I can’t eat enough to puke as much as I would like to.

    Clearly the wages of sin are enormous. I’m going to not think about it, keep my lunch down, and have a nice day.

    1. Jokerstein

      To quote Max Liebermann,
      “Ich kann gar nicht soviel fressen, wie ich kotzen möchte.” – I can’t eat enough to puke as much as I would like to.

      Worth pointing out that the verb fressen in German is usually used for livestock eating, not human, and has strong overtones of greed and excess when used for humans? Stuffing your face is a good English cognate. Maybe doing a faceplant in USese? Troughing is another alternative.

      1. B24S

        There is the saying “Essen, nicht fressen”, said to children as they shovel it in. Think beyond livestock, to dogs, or wolves and other wild animals (especially given the German memory of the dark places…). People eat in a civilized fashion, animals consume ravenously, ripping their prey apart.

        It survives in no small part thanks to the German, as well as the Yiddish, diaspora to the US. My visiting (East) German SIL cracked up when my wife was addressing our boys at the table, she hadn’t heard it since she was young.

    2. djrichard

      Speaking of sin, has anybody visited the “Dolly’s House Museum” in Ketchikan, Alaska? It was a brothel. I wish they had a web site because if I remember right, the brothel took in huge amounts of the wallet share of the consuming public, I.e. all the guys who came back from being out at sea.

      At some point you have to think competing businesses need to do something about this. Not competing brothels. But competing legit businesses. And what better way than to get behind anti-sin campaigns.

      It kind of begs a question too on whether Dolly did any capitalistic growth a la what would contribute to the Kalecki Levy profit equation. I have to imagine Dolly was smart enough to know there was only so much investment that made sense and there was diminishing returns. So perhaps Dolly became an investor in other biz, maybe those legit businesses that would prefer she went out of biz. Even funnier, what if Dolly became an investor in the fleets that were hiriing the fishing crews. That would make complete the “virtuous cycle” wouldn’t it? Or perhaps she plowed it into her brick-and-mortar (or wooden clapboard as the case may be) on the Ketchikan creek and other assets.

      Who knows. But at the end of the day, no different than any other biz running a surplus. Just in this case funny to think about how a den of iniquity was capturing the bulk of the surplus.

  8. Michael Hudson

    I should have added the real kicker. Stablecoins don’t pay interest. So buyers will get the equivalent of a US Treasury security — but NOT the interest (now in the high 4% range). The Stablecoin company will get that. This is a HUGE bonanza for them — and a correspondingly huge foregone income by Stablecoin holders.
    Why don’t they simply by US Treasury bills, notes or bonds themselves?
    The answer must be ideology (imagining Stablecoins to be anti-government when the money is lent to governments), ignorance, and SECRECY. They pay a huge opportunity cost for hiding their identity and the source of their money.

  9. JonnyJames

    At this point in the historical cycle, scams, rackets, and overall institutionalized rot and corruption are to be expected in the US. It is not cynical to assume the worst nowadays, it is being realistic. The oligarchy are the amoral, cynical ones. Healthy skepticism is perhaps a more accurate descriptor.

    I wonder when public trust in our political, legal and financial institutions will erode to the point where the institutions of power can no longer operate? Will people simply refuse to participate?

    This cult-like crypto fetishism looks to me like a modern version of Tulip Mania. It’s a freakin scam for a host of reasons, Dr. Hudson outlines a few.

    I still can’t get my head around the electricity use of “crypto mining” and the crumbling electrical grid and infrastructure. The grid is held together by duct tape and bailing wire as it is, and now ever more demands from crypto and EV’s. Looks like a disaster waiting to happen – add increasing temperatures and more increased demand for electricity to the mix.

    (BTW, Ryan is a right-wing “libertarian”. He wants the “freedom” to f-over everyone else. A “left libertarian” wants the freedom to not be f’ed over by the likes of him”. Right-wing libertarians = gross hypocrisy)

  10. Ron Singer

    Thanks to everybody, article and comments. Most educational.
    And much appreciated.

  11. john r fiore

    Firstly, libertarians are kooks, with their de-regulated “freedom” of everything…when u allow people to do anything they want, they usually will, to their own self-interest. Next Ryans tax plan did nothing to cut the payroll tax. The govt needs to stop taxing work and increase taxing wealth.

    As for Professor Hudson’ belief that the treasury department wants “dark” money coming into the country, if that were the case, then the government would be sued out of existence by the lawyer racket..there are simply too many laws allowing forefeiture of those monies, whether thru class action suite, or whistleblower civil fraud suits, etc. Finally, each state has laws that prevents the use of any criminally made money, even the paying of lawyers. So, in the end the government takes the money.

    1. rob

      Isn’t that sweet. Someone who believes in “the law”. Which laws exactly would prevent money already laundered and legal… or otherwise moved so as to be “legitimately coming from another source”; to be confiscated?
      Laws are for the little people. with enough zeros, laws bend…. so it seems.
      It’s really something when people believe that those making vast sums of morally rank money, don’t go through “the channels” of respectability.
      Whether it is the leaked files of tax havens, or scandals like at HSBC or standard chartered, or the savings and loan scandal of the 70’s /80’s; or BCCI,or any of the others… where we get to see how the sausage is made.

      and yeah, libertarians are kooks….it is like half a thought

  12. Rubicon

    Here’s the central point Hudson said about:
    “The U.S. is seeking to protect the dollar’s high value, not lower it, so it sees acting as the destination for world’s tax avoiders, criminals and others as a positive national strategy. (“Kleptocracy is us.”) The plan is not to condemn tax crime and more violent criminal activities, but seeking to profit for being the banker for these functions.”

    “Kleptocracy is US”

  13. David Todtman

    Money, whether in the form of gold, paper notes, or other configurations must function as a medium of exchange–a universal equivalent of value. Money must perform as an enabler of commodity circulation. Crypto, despite the initial claims of its proponents, does not perform that function. It is not money. It is not currency and cannot be deemed so, regardless of promoters’ liberal applications of porcine maquillage.

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