Stablecoins & the Mirage of U.S. Monetary Dominance

November 7th, 2025

Brent Johnson is best known for his “Dollar Milkshake Theory,” where he has argued for years that global monetary flows will eventually concentrate liquidity into the United States, strengthening the dollar even as other economies suffer under its gravitational pull.

In his recent reflections on U.S. dollar stablecoins, Johnson extends that argument into the digital age. Stablecoins, he suggests, could become the next evolution of the Eurodollar system with an unstoppable mechanism of “redollarization” that spreads U.S. financial dominance through voluntary adoption rather than military or diplomatic coercion. In his view, stablecoins may be the Empire’s ultimate comeback: a digital ring of power that restores and extends U.S. hegemony.

It’s an elegant thesis and, on the surface, a compelling one. But beneath its coherence lies a set of assumptions that deserve closer scrutiny.

The Seduction of Coherence

One of the challenges in critiquing Johnson’s framework is that it fits together beautifully. The dollar’s global dominance feeds demand for dollar assets, which fuels capital inflows into the United States, which in turn reinforces dollar strength. The “milkshake” metaphor captures the self-reinforcing loop of liquidity suction i.e., as the world thirsts for dollars, the U.S. drinks its fill.

Stablecoins, in this framework, are simply the next straw in the glass, they are a frictionless digital conduit for dollar demand. For Johnson, they are not a challenge to the system but a technological extension of it. If the world already wants dollars, why wouldn’t it embrace a faster, more direct way to obtain them?

But coherence isn’t proof. It’s often the sign of a theory that risks being too neat to match the messy realities of the world. And when that theory dovetails with one’s prior worldview (as stablecoins do with Johnson’s dollar-centric lens) it becomes easy to mistake conceptual harmony for empirical truth.

The Myth of Insatiable Dollar Demand

Johnson’s inference of a virtually insatiable global demand for dollars rests heavily on anecdotal and historical observation. He cites decades of global dollarization and points to contemporary examples of individuals in emerging markets, especially in Latin America, willing to trade their local currencies for greenbacks at almost any price.

But the evidence is less straightforward than it seems. The often-cited episode of George Gammon’s trip through South America is instructive. Gammon did indeed find that locals were willing to exchange their pesos or bolívares for U.S. dollars, but at exchange rates heavily skewed in their own favor. In other words, they were more eager to profit from a tourist’s willingness to overpay than to hoard the dollars themselves. That’s not evidence of insatiable demand; it’s evidence of rational arbitrage.

Even where dollar preference exists, it tends to emerge under conditions of acute domestic currency collapse. People in Argentina or Venezuela may wish to hold dollars not because they love the Federal Reserve’s balance sheet, but because their own central banks are worse. That’s an argument for relative, not absolute, demand.

Moreover, this demand is largely transactional, not investment-driven. When inflation recedes or capital controls tighten, dollar usage fades. Local populations revert to their national currencies because that’s where wages are paid, taxes are assessed, and debts are enforced. The pattern is cyclical, not permanent.

The Distinction Between Demand for Dollars and Dollar Assets

Even if we grant that the world prefers dollars as a medium of exchange, that doesn’t necessarily translate into long-term demand for dollar-denominated assets. A shopkeeper in Buenos Aires who wants $100 to hedge against inflation isn’t going to buy U.S. Treasuries or, for that matter, a stablecoin backed by them.

This distinction matters. The stability and dominance of the dollar system depends not on foreigners wanting cash, but on their willingness to lend to the U.S. government by holding Treasuries. It’s that persistent recycling of global surpluses into American debt that finances U.S. deficits and sustains the illusion of infinite demand.

But as yields rise and debt levels balloon, that system begins to strain. Stablecoins, paradoxically, could accelerate this fragility rather than reinforce it. If global users opt for on-chain dollar substitutes without purchasing the underlying Treasuries, the U.S. gets the liabilities (denominated claims against its currency) without the funding benefit. In other words, stablecoins could export dollar liquidity while importing none of the traditional seigniorage advantages.

Why Stablecoins Don’t Necessarily Fund the U.S. Debt

At first glance, global demand for dollar stablecoins looks like a gift to Washington: millions of new users choosing the dollar over local currencies. But the mechanics tell a subtler story.

When foreigners once held cash dollars or U.S. Treasuries, the United States enjoyed two direct benefits:

1. Seigniorage — the profit from issuing currency that costs almost nothing to produce.
2. Cheap financing — steady foreign demand for U.S. government debt.

Stablecoins break that link.

• Private issuers (like Circle or Tether) now hold the Treasuries and keep the yield.
• The users of those tokens merely hold a claim on a private balance sheet, not on the U.S. Treasury.
• When tokens circulate abroad, they expand global dollar liquidity without adding long-term funding to America’s debt markets.

In effect, the U.S. exports digital dollar liabilities but imports little real capital. The seigniorage flows to private issuers, not to the state. And if these coins are backed only partly by short-term bills or commercial paper, they do not absorb the government’s growing long-term debt.

It’s the same offshore dollar paradox that fueled the Eurodollar boom whereby the world gets more synthetic dollars, but the U.S. gains less fiscal support, and less control, over the system built on its name.

That’s not redollarization; it’s dilution.

The irony runs deeper still. By diverting demand away from U.S. Treasuries, stablecoins could raise funding costs for the very issuer whose currency they replicate. Less Treasury demand means higher yields; higher yields devalue banks’ existing bond portfolios and tighten credit conditions. The same mechanism that appears to spread dollar strength could therefore sow the seeds of the next debt or banking crisis – a digital replay of 2008 but likely far worse!

The Paradox of Stablecoin-Driven Dollar Strength

Stablecoins make dollars more accessible globally, creating the appearance of rising demand and a stronger USD. Yet this can be misleading. If foreign holders buy stablecoins without acquiring Treasuries, the U.S. gains liabilities (digital dollars circulating offshore) without the traditional funding benefit.

Assuming that adoption of stablecoin is significant, which is a big assumption as detailed later on, the implications are:

• Short-term FX effect: The USD can appreciate as demand for stablecoin abroad leads private issuers to increase their demand for USD reserves.
• Medium-term risk: Reduced Treasury demand pushes yields higher, pressuring banks and financial institutions.
• Long-term consequence: Once domestic confidence erodes, the apparent external dollar strength may reverse, triggering inflationary pressures or a sudden depreciation.

In other words, stablecoins could temporarily reinforce the dollar’s dominance while simultaneously undermining the domestic financial foundation. That’s a fragile form of “strength” that Austrian theory would warn is unsustainable.

The Fiscal Reality Behind the Curtain

Any serious analysis of dollar stability must confront a simple arithmetic truth i.e.; the United States is broke. It is not temporarily unbalanced or cyclically in deficit; it is structurally insolvent and coming to the end of a long-term debt cycle. The debt-to-GDP ratio now exceeds levels seen in wartime, and unfunded liabilities stretch well beyond $100 trillion.

The political system, meanwhile, has lost the capacity for fiscal restraint. Deficits are bipartisan; austerity is electoral suicide. The only viable path left to avoid a technical default is the same one followed by countless empires before: print the money and inflate away the debt.

Stablecoins, in this context, look less like an instrument of strength than a mechanism of distribution, they are a way to externalize the costs of U.S. fiscal profligacy. By enticing foreigners to hold tokenized claims on Treasuries, Washington can sell its debt to a broader audience. When inflation inevitably erodes the real value of those claims, the loss will be globalized.

Vladimir Putin, never one to mince words, has already described U.S. stablecoin efforts as precisely that: an attempt to sell dollar debt to the world and then debase it. He may be speaking as an adversary, but he is not wrong in principle. The historical precedent is clear. In 1971, the U.S. “temporarily” suspended gold convertibility to escape the fiscal arithmetic of the Vietnam War and domestic overspending. The rest of the world paid the price through inflation and monetary instability. Stablecoins could be a modern replay of that same maneuver – digital IOUs in place of gold certificates.

Inflation as Policy, Not Accident

From a purely political standpoint, inflation is not a bug in the system; it’s the only way out. Monetary policy in a fiat based fractional reserve banking system much reach its inevitable conclusion.

No democratic polity can voluntarily cut spending or raise taxes enough to close the fiscal gap. Defaulting outright on Treasuries would shatter the global financial system. That leaves only one tool; stealth default through debasement.

In that environment, the idea of an endlessly strong dollar, whether in paper or tokenized form, becomes untenable. The stronger the dollar, the heavier the debt burden in real terms. A truly globalized stablecoin system would make that burden even more visible, as the U.S. would owe not just its citizens and institutional investors, but millions of foreign token holders as well. Once inflation expectations rise, confidence in both the paper and the digital dollar could erode simultaneously.

The irony is rich; the very mechanism Johnson sees as extending U.S. power could end up accelerating its decline by exposing the hollowness of fiat credibility.

The Geopolitical Counterplay

Empires don’t expand into vacuums, they expand into resistance. Stablecoins may look unstoppable in theory, but their geopolitical path is anything but smooth.

China already operates a digital yuan and has spent years building cross-border settlement systems that bypass SWIFT. It will not allow U.S. dollar stablecoins to circulate freely within its borders. Russia, already under sanctions, has every incentive to develop parallel systems with partners such as Iran and India. The Global South, increasingly courted by BRICS and tired of dollar dependency, may welcome any credible alternative, whether it’s a commodity-linked trade currency, regional clearing union, or simply more bilateral settlements in local money.

Even Europe, despite its alliance with Washington, recognizes the existential risk of losing monetary sovereignty. Christine Lagarde’s push for a digital euro is as much defensive as innovative, it’s a bid to ensure that the European Central Bank remains relevant in a world where private or foreign digital currencies could otherwise dominate.

If stablecoins proliferate, it will not be through global consensus but through selective permission. The world’s major powers will wall off their domestic systems, limiting adoption to peripheral states too weak to resist. The result may not be global redollarization but a bifurcated monetary world, with one bloc centered on U.S. digital dollars, another on Chinese-led trade systems, and a patchwork of regional experiments in between.

The Limits of Adoption in the Real World

Even setting geopolitics aside, practical adoption challenges abound.

Stablecoins require digital infrastructure including smartphones, internet access, and the technical literacy to manage private keys or custodial wallets. In countries suffering hyperinflation, these prerequisites often don’t exist. Power outages, patchy connectivity, and government interference make daily life hard enough without adding digital complexity.

Moreover, ordinary users in developing economies care less about currency theory than about immediate usability. If a stablecoin cannot easily buy food, pay rent, or cover school fees, its advantage remains abstract. Without a dense local ecosystem of merchants and services accepting it, stablecoin adoption will stagnate.

There is also the issue of trust. Most stablecoins rely on centralized issuers holding reserves in U.S. assets. Users must believe that those issuers are solvent, that the reserves exist, and that redemption is possible under stress. The experience of TerraUSD and other failed stablecoins shows how fragile that confidence can be. Even “fully backed” coins like Tether have faced persistent doubts about their reserves. To imagine that citizens in unstable countries will trust opaque financial institutions headquartered in New York or Delaware more than their own governments may be optimistic.

Stablecoins and the End of the Free Market

There’s a deeper philosophical contradiction at play.

Stablecoins are often presented as instruments of financial freedom, as a way to escape capital controls and inflationary governments. Yet if they become mainstream, they will likely evolve in the opposite direction – as instruments of state control.

A Treasury-sanctioned or Fed-approved stablecoin would not be a libertarian innovation but a digital leash. Programmable money allows unprecedented visibility and conditionality. Funds can be frozen, transactions reversed, or spending restricted with a few lines of code. A stablecoin system could thus merge the surveillance potential of a central bank digital currency with the liquidity of the dollar network.

That outcome may be efficient for tax collection and sanctions enforcement, but it is profoundly at odds with the idea of monetary liberty. It replaces the messiness of human discretion with the inflexibility of code, code that ultimately answers to the same political imperatives that created the fiscal problem in the first place.

The irony, again, is that stablecoins could complete the centralization process that many of their early adopters sought to resist.

A System Built on Borrowed Time

The deeper question is whether the United States still has the moral and financial capital to sustain a new monetary order, digital or otherwise.

For decades, U.S. hegemony rested on two pillars – military dominance and the credibility of its financial system. The former retains some potency but is overstretched and somewhat antiquated; the latter increasingly rests on faith rather than fundamentals. The dollar’s supremacy has endured not because of virtue but because the alternatives were worse.

Stablecoins do nothing to alter that equation. They may extend the reach of the dollar, but they cannot repair the balance sheet of the issuer behind it. A tokenized liability is still a liability. Wrapping it in blockchain does not make it sound money.

The Austrian critique has always been that fiat systems decay not through mismanagement but through design. Their very elasticity ensures eventual overexpansion. The introduction of stablecoins simply accelerates that elasticity, with more channels for debt, more layers of abstraction, more confidence built on leverage rather than productivity. In that sense, stablecoins are not the next chapter of U.S. monetary dominance; they are the latest symptom of its excess.

The Paradox of Power and Fragility

Empires often fall not when they are weak, but when they try to extend strength beyond its natural limits. Rome debased its coinage to pay for legions it could no longer afford; Britain exported inflation through sterling as its colonies drifted away. The U.S., too, now faces the temptation to use technology to mask economic fatigue.

Stablecoins may grant Washington new tools of influence, with real-time visibility, sanctions precision, and global reach, but they do nothing to address the internal contradictions of a debt-driven system. The more the U.S. relies on the dollar’s status to fund its deficits, the greater the incentive to abuse that status. And the more it abuses it, the faster confidence erodes.

In that sense, Johnson’s vision of the dollar as an unstoppable gravitational force may be self-fulfilling only for a time. Gravity pulls downward too.

The Long Arc Toward Sound Money

None of this is to dismiss Johnson’s insight. His recognition that liquidity flows toward safety and power is fundamentally sound. He is right that, for now, no rival currency offers the depth, liquidity, or legal infrastructure of the U.S. dollar. And he is correct that stablecoins can, in principle, bypass the inefficiencies of the traditional banking system.

However, the more the U.S. leverages its monetary privilege, the more brittle that privilege becomes. Stablecoins may buy time, but they cannot buy trust. And trust, not code, not yield, not liquidity, is the ultimate reserve asset. Gold has, this year, replaced the dollar as the primary reserve asset held by central banks, while the DXY index has shown less than ideal performance for the dollar.

If the U.S. continues down its current fiscal path, the endgame is not redollarization but revaluation i.e., a systemic repricing of fiat promises against real assets. Gold, productive capital, and decentralized stores of value will once again assert their primacy.

FAQs

Conclusion: The Empire’s Digital Mirage

Brent Johnson deserves credit for recognizing that the global financial system is entering a new phase. His analysis of liquidity dynamics and the dollar’s gravitational pull remains among the most lucid in modern macro discourse. But his vision of dollar stablecoins as an extension of that dominance underestimates both the internal decay of the issuer and the adaptive capacity of the world beyond it.

Stablecoins may indeed spread, but not because the world loves the dollar, but rather because it has few alternatives for now. When those alternatives mature, or when U.S. inflation erodes confidence in dollar-denominated assets, the migration could just as easily reverse.

In that light, stablecoins are not the Empire’s triumph but its illusion of vitality, a mirage shimmering over an exhausted desert of debt. They may buy time, but not solvency. They expand reach, but not legitimacy. They may even hasten the very reckoning they were meant to forestall.

Source:

• Brent Johnson - Stablecoin Revolution To Make The Dollar More Dominant Than Ever?

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