Washington’s stablecoin strategy could shore up the dollar by making U.S. Treasury bills the backing for a new digital currency. But who gets the interest, and who will make the loans?
For several years, “the death of the dollar” has been a persistent headline, with compelling data to back it up. The dollar’s share of global foreign exchange reserves has slipped from over 70% in 1999 to about 57% today. Last spring, gold overtook U.S. Treasuries as the largest asset in foreign central bank reserves for the first time since the mid-1990s. The BRICS nations are settling more of their trade in their own currencies, and the U.S. has used the dollar as a sanctions weapon so often that friendly nations as well as rivals are looking for a way out. A topic once confined to gold bugs and doomsday newsletters has gone mainstream.
At the Federal Reserve’s Jackson Hole symposium in August, however, a paper by Eswar Prasad and colleagues highlighted a different set of data. Yes, the dollar’s share of central bank reserves has fallen, and foreign central banks’ Treasury holdings have stayed flat at around $4 trillion. But foreign private holdings have risen from $1 trillion in 2010 to more than $5 trillion today. The world isn’t dumping the dollar so much as changing who holds it. And the authors expect stablecoins to accelerate that shift, by driving global demand for dollars into the U.S. Treasury bills needed to back them. The dollar may not be dying so much as being re-engineered.
According to financial strategist Matt Dines, who attended the recent G20 meeting of finance ministers and central bank governors in Asheville, a “dollar reset” is underway. His thesis is that Washington isn’t trying to prop up the old dollar so much as to build a new one on a different foundation – a foundation that is the very debt everyone is so worried about. In August the national debt passed $40 trillion, with annual interest of over $1 trillion.
The notion that government debt can be an asset isn’t new. A Treasury bond is a debt of the government, but it is an asset to whoever owns it. The idea goes back to Alexander Hamilton, the first U.S. Treasury Secretary. Faced with a crushing Revolutionary War debt, he turned it into an asset by accepting it as three-fourths of the payment for stock in the First Bank of the United States. The debt thus became the capital of a national bank that generated credit for the nation.
The new dollar reset would do something similar on a global scale: Treasury bills, a portion of the national debt, would become the assets backing the world’s digital trade currency.
The View from Asheville
The G20 meeting in late August was hosted by Treasury Secretary Scott Bessent and attended by new Federal Reserve Chair Kevin Warsh. The official agenda was growth, deregulation, energy security and sovereign debt. But Dines came away with a bigger takeaway, which he laid out in a video titled “Quantitative Credit Guidance: G20 Says Growth Is the Only Way Out.”
His reading is that the officials now running U.S. monetary policy have concluded that the debt cannot simply be inflated away with another round of quantitative easing, as it was after the 2008 financial crisis, when the Fed created trillions of dollars that mainly inflated stock and bond prices on Wall Street. As a ZeroHedge summary of Dines’ thesis put it, “The QE period is over.” The way out is to “provide credit to those who have capacity (Main Street),” with credit steered into factories, infrastructure and productive investment rather than financial speculation.
Dines draws on economist Richard Werner, whose Princes of the Yen showed how Japan’s central bank used “window guidance” to steer bank credit into productive industry. What matters, Werner argues, is not just how much money is created but where it goes: credit for buying existing assets inflates prices, while credit for producing new goods and services creates growth without inflation.
Bessent said, “The only way for us to get out of this is to grow our way out of it.” Whether that kind of growth is achievable is debated. But supporting economic growth is only half of the new dollar plan. The other half concerns the plumbing of the dollar itself – what backs it in trade.
Your Dollars Are Your Bank’s IOUs
Most of the money we use today is not government-issued cash. It is bank deposits, and a deposit is a liability of the bank, its promise to pay dollars on demand. When a bank makes a loan, it doesn’t lend out someone else’s savings. It credits the borrower’s account with a new deposit. The loan is the bank’s asset; the deposit is its liability. That is how the money supply expands.
When the depositor asked for his money, historically the bank paid with gold or silver. Today it is Federal Reserve reserves – digital balances held by banks at the Fed, or the paper notes into which reserves can be converted. Deposits are only a promise to deliver that “real” money, and no bank holds enough of it to pay everyone at once. The system works because depositors don’t all ask for their money at once, and because deposit insurance and the Fed stand behind it.
When confidence fails, however, a bank can fail even if its assets look safe. Silicon Valley Bank held long-term Treasuries and mortgage-backed securities, about as safe as assets get. But when interest rates rose, those bonds lost market value. In March 2023, depositors tried to withdraw $42 billion in a single day, and SVB couldn’t sell its bonds quickly enough at a sufficient price to cover the demand. The bank was gone within 48 hours. The 2008 financial collapse was worse, because the assets were subprime mortgages that were hardly marketable at all.
Dines notes that the dollar traded globally has long been “liability-based.” The vast offshore “eurodollar” market runs on dollar IOUs created by banks in London and elsewhere, banks that lack reserve accounts with the U.S. central bank and are beyond the reach of U.S. regulators. When that market froze in 2008, the Fed had to open emergency swap lines to foreign central banks to keep it from collapsing. According to Dines, it is that “liability-based” system that is being left behind.
Changing What Backs the Dollar
The GENIUS Act, signed in July 2025, set up an alternative to liability-based dollars backed with bank IOUs. Regulated dollar stablecoins are backed one-for-one with cash and short-term Treasury bills. In a June podcast, Dines said the Act pulls the dollar toward “an asset-based definition,” a dollar that “anchors back and is reserved one to one with U.S. Treasury debt.” The old offshore dollar is “being left out to dry.”
When the GENIUS Act was signed, Treasury Secretary Bessent declared that “the dollar now has an internet-native payment rail that is fast, frictionless, and free of middlemen.” (A payment rail is the network that carries money from one account to another.) He predicted a “surge in demand for US Treasuries, which back stablecoins.” In November 2025, he projected that the stablecoin market, then about $300 billion, “could grow tenfold by the end of the decade.”
Most stablecoins are held overseas, many by people and businesses seeking a currency more stable than their own. A business in Argentina or Nigeria that wants dollars buys dollar stablecoins. The stablecoin issuer then takes that money and buys U.S. Treasury bills. The world’s appetite for dollars thus becomes an appetite for U.S. government debt. In the new stablecoin model, the Fed would no longer need to buy Treasuries with reserves newly created through QE, because a global network of digital dollars would be buying them instead.
An Asset-Backed Dollar? Not Quite, But Close
Technically, a stablecoin is also a liability: it is the issuer’s promise to redeem your token for a dollar. When you hand Circle, the issuer of USDC stablecoins, $100 for 100 USDC tokens, Circle owns the Treasury bills it buys with your money. You just own a claim on Circle for that sum. The shift then isn’t really from a liability to an asset. It’s from a liability backed by private loans to a liability backed by public debt.
But that is still a meaningful difference. Under the GENIUS Act, stablecoins must be backed one-for-one by cash, bank deposits, overnight repos or Treasury bills maturing in 93 days or less. The issuer can’t lend the money out or buy ten-year bonds that lose value when rates rise. There’s no “maturity mismatch” and no “fractional reserve” problem. If everyone redeems at once, the money is there. An SVB-style collapse from long-dated bonds losing value isn’t supposed to be possible.
But the safeguard isn’t perfect. In fact, the biggest scare in the regulated stablecoin world came from SVB itself. Even stablecoins need banks to hold their funds, and in March 2023, Circle had $3.3 billion of USDC’s reserves sitting on deposit in SVB. USDC broke its dollar peg, falling to about 87 cents, until regulators guaranteed the deposits. But with reserves held mostly in short-term Treasuries, the stablecoin structure is still sounder than the bank money it would replace.
There are, however, other problems with the new plan.
Who Gets the Interest?
Bessent promised a payment rail “free of middlemen,” but this isn’t actually true. The stablecoin issuer is the middleman, and it is enormously well-paid.
When you give the issuer a dollar, it gives you a token worth a dollar and puts your dollar into Treasury bills paying 3% to 4%. But you get no interest. In fact, the GENIUS Act prohibits issuers from paying interest to holders. In effect, the issuer has borrowed from you at zero interest and lent to the government at the market rate.
The results are spectacular – for the issuer. Tether, the largest issuer, reported more than $10 billion in net profit for 2025, with a staff of just over 100 in 2024. It holds over $120 billion in U.S. Treasuries, making it one of the largest holders of U.S. government debt in the world. Circle, the issuer of USDC, reported $2.7 billion in revenue for 2025, about 95% of it from interest on reserves.
Scaling that up to Bessent’s $3 trillion market, the reserves would earn more than $100 billion a year at 3.5%. And the interest is paid by U.S. taxpayers, through interest on the federal debt. The public pays interest to private companies, so that those companies can issue the public’s own currency and keep the spread.
That’s the privilege known as seigniorage, the profit from issuing money, and it would be handed to a few private firms. Hamilton’s American System used public credit to build the productive economy. The private stablecoin model looks more like the British System of speculation and rent collection that Hamilton was trying to escape.
Stablecoins Move Money, but We Need Banks to Create Credit.
There’s a second problem with the stablecoin plan, which works counter to the “growth through credit” part of the dollar reset proposal. Dollars moved into stablecoins typically come out of bank deposits, which banks need to back their loans. The stablecoin issuer can’t lend that dollar back out. By law, it can only park it in safe, short-term assets, mostly Treasury bills. Money that was supporting loans to local businesses ends up financing the federal government instead.
An economy that is growing needs a money supply that can grow with it, and in our system that expansion happens when banks lend into new production. Stablecoins can move existing money around the world at lightning speed, but they can’t finance factories, farms, water systems or small businesses.
The Treasury’s Borrowing Advisory Committee has flagged trillions of dollars in bank deposits as potentially at risk of migrating into stablecoins. Hardest hit would be community banks, which depend on ordinary deposits. According to the FDIC, community banks hold 36% of small business loans and 70% of agricultural loans, though they hold only 15% of all bank loans.
So far, most of this risk has been overseas. Tether, two-thirds of the stablecoin market, is generally not sold to Americans, and Circle’s CEO has estimated that 70% of USDC use is outside the United States. Ordinary American savers have had little reason to trade an insured bank account for a token that pays no interest. But a loophole could change that. The GENIUS Act bars issuers from paying interest, but it doesn’t stop crypto exchanges from paying “rewards.” The Coinbase exchange pays customers a rate on USDC close to what Treasury bills earn, funded by the share of reserve income Circle pays to it. A checking account paying next to nothing can’t compete. Banks are lobbying Congress hard to close the loophole, for good reason: it’s the channel through which local deposits could be drained away.
A full-reserve stablecoin can only recycle existing dollars into government debt. So the two halves of the dollar reset pull against each other: one wants credit steered to Main Street, while the other drains the deposits Main Street’s banks need in order to lend. Werner has long argued that the most productive credit comes from small, local banks lending to local businesses, the model behind Germany’s Sparkassen and its strong Mittelstand of mid-sized firms.
Is there a way to get the benefits of digital dollars without losing the interest to private issuers or the deposits to the Treasury market? Two states are already testing an answer.
The Public Option: Wyoming and North Dakota
In August 2025, Wyoming launched the Frontier Stable Token (FRNT), the first stable token issued by a U.S. state. Like USDC and Tether, it is backed by cash and short-term Treasuries, in this case 102% of the tokens outstanding. The difference is in where the interest goes. Instead of going to private stablecoin issuers, the income from FRNT’s reserves goes to Wyoming’s school foundation program.
North Dakota is also doing something interesting from a public banking perspective. The Bank of North Dakota, the nation’s only state-owned bank, has launched its own Roughrider Coin. The Coin isn’t for retail customers, and the public can’t buy it. It is designed for the state’s banks and credit unions for fast bank-to-bank payments.
According to Startup Fortune, the system is designed to serve more than 90 North Dakota banks and credit unions. The transactions are recorded on the Solana blockchain, and banks reach the coin through Fiserv, the financial technology company whose software many community banks already use for their accounts and payments.
What the coin is good for is speed. The older ACH (Automated Clearing House) system processes payments in batches that settle overnight. Solana was chosen, the article says, for the “sub-second finality that overnight ACH rails simply cannot offer.” Banks can thus settle with each other almost instantly instead of waiting for the batch to clear. Critics such as Catherine Austin Fitts warn that putting deposits on a programmable ledger could make accounts easier to freeze automatically. For that reason public and community banks, answerable to local oversight, are better placed than Wall Street to build in human review.
Plugging the Deposit Drain
Transaction speed is good, but the risk to deposits remains. When the coin was announced, North Dakota Bankers Association president Rick Clayburgh warned that a stablecoin “can possibly drain deposits from an institution,” noting that deposits are “what’s used to loan money out.” What the Roughrider Coin has going for it is who sponsors it: a public bank whose mission for more than a century has been to support local lenders, not compete with them. According to Startup Fortune, community banks that have “spent a decade losing deposit share and talent to bigger rivals” now have “a stablecoin product they didn’t have to write a line of code for.” A bank that can offer digital-dollar payments through its own channel gives its customers less reason to take their money elsewhere.
For keeping deposits in the local lending system, however, a different tool is needed – and there is one, the “tokenized deposit,” an ordinary bank deposit recorded on a blockchain. It moves as quickly as a stablecoin, but it remains a deposit the bank can lend against, and it is insured by the FDIC up to the usual limit. JPMorgan has launched one for its institutional clients, and five regional banks have formed a network to exchange tokenized deposits that “do not leave the insured banking perimeter.” At the Jackson Hole symposium where the Prasad paper was presented, Pablo Hernández de Cos, general manager of the Bank for International Settlements, said tokenized deposits “preserve the tight link between deposit-taking and credit provision.” But he warned that smaller banks “might struggle with high upfront implementation costs” to create the tokenized deposits, with “knock-on effects for small business and local lending.”
That is a gap a public bankers’ bank could fill. BND already provides North Dakota’s banks and credit unions with correspondent services, including wire transfers, ACH payments and Federal Reserve settlement. With Roughrider, it has made a shared digital platform accessible to more than 90 financial institutions. It could likewise give them shared tokenization infrastructure: digital dollars that remain local deposits, available for local loans.
Echoing Hamilton
Combining what Wyoming and North Dakota have done, states could issue stablecoins for making payments, and keep the interest for public purposes. And public and community banks could do what stablecoins can’t: lend, creating new money for local businesses, farms and housing.
Hamilton would have approved. His First U.S. Bank wasn’t just a place to park the national debt. It extended credit to commerce and built the productive base that made the debt’s repayment possible. That was the heart of what came to be called the American System, as opposed to the British System of finance serving finance.
If the current Administration is rebuilding the dollar on a foundation of Treasury debt, as Dines suggests, the result could be sturdier money than the eurodollar IOUs it replaces. But growth takes a credit engine, and that means local banks with deposits to lend.
If a few private issuers keep the interest and share it with exchanges as customer “rewards,” the reset will have produced a new generation of princes of the dollar. But if more states join the ranks of issuers, working through public banks in partnership with Main Street banks, the reset could echo Hamilton’s reforms. A growing share of the national debt would be absorbed as backing for the world’s digital dollars, while public and local banks supplied the credit to grow our way out of the debt.
On January 30, when former Federal Reserve board member Kevin Warsh was nominated by President Trump as the central bank’s next chair, markets sold off and gold and silver plunged. Investors were positioned for a “dove,” someone inclined to cut rates aggressively and keep money loose; and Warsh has a long-standing reputation as a “hawk.”
So wrote Michael Nicoletos in an article titled “Everyone Is Focusing on the Wrong Thing.” But Nicoletos and some other commentators are seeing something else on the horizon – a rebalancing of the banking system through an overhaul of the Federal Reserve itself. In recent months, noted Nicoletos, Warsh has argued that the central bank’s “bloated balance sheet” has made borrowing “too easy” for Wall Street, while leaving “credit on Main Street too tight.” That contrast — abundant liquidity for the largest financial institutions, scarcity for the communities that actually generate economic activity — is a structural flaw that has unbalanced the American economy.
Albert Einstein is often quoted as saying that compound interest is “the most powerful force in the universe.” The quote is probably apocryphal, but it reflects a mathematical truth. Interest on earlier interest grows exponentially, outrunning the linear growth of revenue and eventually consuming everything.
That is where the United States now stands. The government does pay the interest on its debt every year, but it is having to pay it with borrowed money. The interest curve is rising exponentially, while the tax base is not.
Interest is now the fastest growing line item in the entire federal budget. The government paid $970 billion in net interest in FY2025, more than the Pentagon budget and rapidly closing in on Social Security. It already exceeds spending on Medicare and national defense and is second only to Social Security. The Congressional Budget Office projects that interest will reach nearly $1.8 trillion by 2035 and will cost taxpayers $13.8 trillion over the next decade. That is roughly what Social Security will pay out over the same decade (about $1.6 trillion a year). The Social Security Trust Fund is running dry, not because there are too many seniors, but because interest payments are consuming the federal budget that should be shoring it up.
We will build a city-owned bank — not to serve shareholders, but to serve you. A bank that invests in housing, in transit, in climate resilience. A bank that puts our money to work for our people.” — Zohran Mamdani, Victory Speech, Nov. 4, 2025
New York City has elected a mayor who dares to challenge the status quo. Zohran Mamdani swept into office on a platform of affordability, municipal ownership and economic justice. But Mamdani’s plan to fund his reforms through $9 billion in new taxes on corporations and high earners is already bumping up against political and fiscal realities.
Income taxes are the province of the state, not the city, and NY State Governor Kathy Hochul is standing firm in her resistance to raising them. Pres. Trump has vowed to “cut off the lifeline” to the city, pledging to reduce federal aid to the legal minimum. And Mamdani’s proposals are said to be triggering capital flight. Wall Street is mobilizing. The city’s budget is strained. So where will the money come from?
There has been considerable discussion in recent years about reforming, modifying, or even abolishing the Federal Reserve. Proposals range from ending its independence, to integrating its functions into the U.S. Treasury Department, to dismantling it and returning monetary policy to direct congressional or Treasury oversight.
The Federal Reserve Board Abolition Act (H.R. 1846 and S. 869, 119th Congress, 2025-2026), introduced by Rep. Thomas Massie in the House and Sen. Mike Lee in the Senate on March 4, 2025, calls for abolishing the Fed’s Board of Governors and regional banks within one year of enactment, liquidating Fed assets and transferring net proceeds to the Treasury. It echoes earlier efforts like Ron Paul’s 1999 bill to “end the Fed”, but the odds of its passing are slim.
Less radical are proposals to curb the independence of the Federal Reserve. Former Fed governor Kevin Warsh is considered one of five finalists to take over as chairman after Jerome Powell. In a July 17 CNBC interview, he called for sweeping changes in how the central bank conducts business, and suggested a policy alliance with the Treasury Department.
Substantial precedent exists for that approach, both in the United States and abroad. In the 1930s and 1940s, before the Fed officially became “independent,” it worked with the federal government to fund the most productive period in our country’s history. More on that shortly.
The Federal Reserve’s independence is currently being challenged by political forces seeking to reshape its mandate. The Fed has not always been independent of Congress and the Treasury. Its independence was formalized only in 1951, with a Treasury-Federal Reserve Accord that was not a law but a policy agreement redefining the relationship of the parties. In the 1930s and 1940s, before the Fed officially became “independent,” it worked with the federal government to fund the most productive period in our country’s history. We can and should do that again.
In a Sept. 1 Substack post titled “Fed Faces Biggest Direct Challenge by a President Since JFK – and This Is a Good Thing,” UK Prof. Richard Werner shows that there is no evidence that more independent central banks deliver lower inflation. In fact, per his findings, central bank independence has no measurable impact on real economic performance, and greater central bank independence has resulted in lower economic growth.
This two-part series will probe the forces in play now to overhaul the Fed, and the feasibility of redirecting it to use its tools, including “quantitative easing,” not just to save the banks but to save the economy. Part I looks at a particularly flawed Fed policy — Interest on Reserves (IOR) — which burdens the budget, stifles liquidity, and subsidizes banks. Then it suggests ways that eliminating IOR and reining in the Fed’s independence could solve the Treasury’s interest burden altogether.
The U.S. federal debt has now passed $37 trillion and is growing at the rate of $1 trillion every five months. Interest on the debt exceeds $1 trillion annually, second only to Social Security in the federal budget. The military outlay is also close to $1 trillion, consuming nearly half of the discretionary budget.
As a sovereign nation, the United States could avoid debt altogether by simply paying for the budget deficit with Treasury-issued “Greenbacks,” as Abraham Lincoln’s government did. But I have written on that before (see here and here), so this article will focus on that other elephant in the room, the Department of Defense.
No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.
As concerning today as the financial burden is the wielding of secret power. Pres. Dwight Eisenhower warned in his 1961 farewell address, “In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”
This month Congress passed the GENIUS Act, an acronym for the “Guiding and Establishing National Innovation for U.S. Stablecoins of 2025.” Designed to regulate stablecoins, a category of cryptocurrency designed to maintain a stable value, the Act is highly controversial.
Critics variously argue that it anoints stablecoins as the equivalent of “programmable” central bank digital currencies (CBDCs), that it lacks strong consumer protections, and that government centralization destroys the independence of the cryptocurrency market. Proponents say the rapidly expanding stablecoin market not only provides a faster and cheaper payments system but can serve as a major funding source to help alleviate the federal debt crisis, which is poised to destroy the economy if not checked, and that the stablecoin market has gotten so large that without regulation, we may have to bail it out when it becomes a multitrillion dollar industry that is “too big to fail.”
For most people, however, the whole subject of stablecoins is a mystery, so this article will attempt to throw some light on it. It will also explore some historical use cases demonstrating how the government might incorporate stablecoins into a broader program for escaping the debt crisis altogether.
In February, President Trump said that tariffs would generate so much income that Americans would no longer need to pay income taxes.
The latest plan, according to U.S. Commerce Secretary Howard Lutnick, is to abolish income taxes for people who earn less than $150,000 yearly. That move would affect roughly 75% of workers, according to U.S. Census Bureau data. On its face, this could narrow the wealth gap by boosting disposable income for low- and middle-income households without raising taxes on the wealthy — a politically clever alternative to progressive tax hikes.
Eliminating the burden of income taxes is an exciting proposition, due to savings not just in money but in man-hours — the time spent anguishing over ledgers, forms and receipts. In 2024, according to the Tax Foundation, Americans spent 7.9 billion hours complying with IRS tax filing and reporting requirements. That is equivalent to 3.8 million full-time workers—roughly the population of Los Angeles — doing nothing but tax paperwork for the full year.
The question is, can tariffs and DOGE replace income taxes? If not, how else could the government fund itself? Is a growing debt bubble that is now carrying a $1.2 trillion interest tab, which must continue to expand just to sustain itself, the only alternative?
President Trump has repeatedly expressed his admiration for Republican President William McKinley, highlighting his use of tariffs as a model for economic policy. But critics say Trump’s tariffs, which are intended to protect U.S. interests, have instead fueled a stock market nosedive, provoked tit-for-tat tariffs from key partners, risk a broader trade withdrawal, and could increase the federal debt by reducing GDP and tax income.
The federal debt has reached $36.2 trillion, the annual interest on it is $1.2 trillion, and the projected 2025 budget deficit is $1.9 trillion – meaning $1.9 trillion will be added to the debt this year. It’s an unsustainable debt bubble doomed to pop on its present trajectory.
The goal of Elon Musk’s DOGE (Department of Government Efficiency) is to reduce the deficit by reducing budget expenditures. But Musk now acknowledges that the DOGE team’s efforts will probably cut expenses by only $1 trillion, not the $2 trillion originally projected. That will leave a nearly $1 trillion deficit that will have to be covered by more borrowing, and the debt tsunami will continue to grow.
Rather than modeling the economy on McKinley, President Trump might do well to model it on our first Republican president, Abraham Lincoln, whose debt-free Greenbacks saved the country from a crippling war debt to British-backed bankers, and whose policies laid the foundation for national economic resilience in the coming decades. Just “printing the money” can be and has been done sustainably, by directing the new funds into generating new GDP; and there are compelling historical examples of that approach. In fact, it may be our only way out of the debt crisis. But first a look at the tariff issue.
China went from one of the poorest countries in the world to global economic powerhouse in a mere four decades. Currently featured in the news is DeepSeek, the free, open source A.I. built by innovative Chinese entrepreneurs which just pricked the massive U.S. A.I. bubble.
Even more impressive, however, is the infrastructure China has built, including 26,000 miles of high speed rail, the world’s largest hydroelectric power station, the longest sea-crossing bridge in the world, 100,000 miles of expressway, the world’s first commercial magnetic levitation train, the world’s largest urban metro network, seven of the world’s 10 busiest ports, and solar and wind power generation accounting for over 35% of global renewable energy capacity. Topping the list is the Belt and Road Initiative, an infrastructure development program involving 140 countries, through which China has invested in ports, railways, highways and energy projects worldwide.
All that takes money. Where did it come from? Numerous funding sources are named in mainstream references, but the one explored here is a rarely mentioned form of quantitative easing — the central bank just “prints the money.” (That’s the term often used, though printing presses aren’t necessarily involved.)
North Dakota is staunchly conservative, having voted Republican in every presidential election since Lyndon Johnson in 1964. So how is it that the state boasts the only state-owned bank in the nation? Has it secretly gone socialist?
No. The Bank of North Dakota (BND) operates on the same principles as any capitalist bank, except that its profits and benefits serve the North Dakota public rather than private investors and executives. The BND provides a unique, innovative model, in which public ownership is leveraged to enhance the workings of the private sector. It invests in and supports private enterprise — local businesses, agriculture, and economic development – the core activities of a capitalist system where private property and enterprise are central. Across the country, small businesses are now failing at increasingly high rates, but that’s not true in North Dakota, which was rated by Forbes Magazine the best state in which to start a business in 2024.
The BND was founded in 1919, when North Dakota farmers rose up against the powerful out-of-state banking-railroad-granary cartel that was unfairly foreclosing on their farms. They formed the Non-Partisan League, won an election, and founded the state’s own bank and granary, both of which are still active today.
The BND operates within the private financial market, working alongside private banks rather than replacing them. It provides loans and other banking services, primarily to other banks, local governments, and state agencies, which then lend to or invest in private sector enterprises. It operates with a profit motive, with profits either retained as capital to increase the bank’s loan capacity or returned to the state’s general fund, supporting public projects, education, and infrastructure.
According to the BND website, more than $1 billion had been transferred to the state’s general fund and special programs through 2018, most of it in the previous decade. That is a substantial sum for a state with a population that is only about one-fifteenth the size of Los Angeles County.
The BND actually beats private banks at their own game, generating a larger return on equity (ROE) for its public citizen-owners than even the largest Wall Street banks return to their private investors.
Fifteen years have passed since the Occupy Wall Street movement focused attention on the inequities and hazards of large Wall Street banks, particularly those risky banks with trillions of dollars in derivatives on their books. “Move your money” was the obvious response, but what could local governments do? Their bank accounts were too large for local banks to handle.
Thus was the public banking movement born. The impressive potential of government-owned banks was demonstrated by the century-old Bank of North Dakota (BND), currently the nation’s only state-owned bank. In the last fifteen years, over 100 bills and resolutions for local U.S. government-owned banks have been filed based on the BND model. But while promising bills are still pending, so far the allure of saving money, stimulating the local economy, banking the underbanked and avoiding a derivative crisis has been insufficient to motivate local legislators to pass bills opposed by their Wall Street patrons. State legislators have acknowledged potential benefits, but they have generally not been ready to rock the boat when the situation did not appear to be urgent.
Now, however, Florida Chief Financial Officer Jimmy Patronis has come up with an urgent reason for a state to own its own bank – to avoid bank regulations designed to achieve social or political ends that state officials believe are inappropriate or go too far, including “debanking” vocal opponents of federal policy. The concerns are Constitutional, testing the First Amendment guarantees of free speech, freedom of the press and freedom of religion, and the 10th Amendment right of states and citizens to self-govern in matters not specifically delegated in the Constitution to central government oversight.
“It was not the highly visible acts of Congress but the seemingly mundane and often nontransparent actions of regulatory agencies that empowered the great transformation of the U.S. commercial banks from traditionally conservative deposit-taking and lending businesses into providers of wholesale financial risk management and intermediation services.” — Professor Saule Omarova, “The Quiet Metamorphosis, How Derivatives Changed the Business of Banking” University of Miami Law Review, 2009
While the world is absorbed in the U.S. election drama, the derivatives time bomb continues to tick menacingly backstage. No one knows the actual size of the derivatives market, since a major portion of it is traded over-the-counter, hidden in off-balance-sheet special purpose vehicles. However, when Warren Buffet famously labeled derivatives “financial weapons of mass destruction” in 2002, its “notional value” was estimated at $56 trillion. Twenty years later, the Bank for International Settlements estimated that value at $610 trillion. And financial commentators have put it as high as $2.3 quadrillion or even $3.7 quadrillion, far exceeding global GDP, which was about $100 trillion in 2022. A quadrillion is 1,000 trillion.
Most of this casino is run through the same banks that hold our deposits for safekeeping. Derivatives are sold as “insurance” against risk, but they actually add a heavy layer of risk because the market is so interconnected that any failure can have a domino effect. Most of the banks involved are also designated “too big to fail,” which means we the people will be bailing them out if they do fail.
In 2022, the state of California celebrated a record budget surplus of $97.5 billion. Two years later, according to the Legislative Analyst’s Office, this surplus has plummeted to a record budget deficit of $73 billion. Balancing the budget will be challenging. Unlike the federal government, the state cannot just drive up debt and roll it over year after year. The California Balanced Budget Act, passed in 2004, requires the state legislature to pass a balanced budget every year.
The usual solutions are to cut programs or raise taxes, but both approaches are facing an uphill battle. Raising taxes would require a two-thirds vote of the legislature, which would be very challenging, and worthy public programs are in danger of getting axed, including homelessness prevention and funding for low-income housing.
A third possibility might be to increase the income tax base and state income by stimulating the economy with a state-owned depository bank. The state-owned Bank of North Dakota, which has raised record profits for its state, is a stellar example. In a review of states with the healthiest budgets based on data from the PEW Charitable Trusts, U.S. News & World Report puts North Dakota at No. 1 in Budget Balancing and #1 in Short-term Fiscal Stability.
California has an Infrastructure and Development Bank, which is already capitalized and has an established track record of prudent and productive lending, but it is not a depository bank and its reach is small. Transforming it into a depository bank would be fairly uncomplicated and could substantially increase its reach.
But first a look at what happened to the state’s copious revenues.
Reading the tea leaves for the 2024 economy is challenging. On January 5th, Treasury Secretary Janet Yellen said we have achieved a “soft landing,” with wages rising faster than prices in 2023. But critics are questioning the official figures, and prices are still high. Surveys show that consumers remain apprehensive.
There are other concerns. On Dec. 24, 2023, Catherine Herridge, a senior investigative correspondent for CBS News covering national security and intelligence, said on “Face the Nation,” “I just feel a lot of concern that 2024 may be the year of a black swan event. This is a national security event with high impact that’s very hard to predict.”
What sort of event she didn’t say, but speculations have included a major cyberattack; a banking crisis due to a wave of defaults from high interest rates, particularly in commercial real estate; an oil embargo due to war; or a civil war. Any major black swan could prick the massive derivatives bubble, which the Bank for International Settlements put at over one quadrillion (1,000 trillion) dollars as far back as 2008. With global GDP at only $100 trillion, there is not enough money in the world to satisfy all these derivative claims. A derivative crisis helped trigger the 2008 banking collapse, and that could happen again.
The dangers of derivatives have been known for decades. Warren Buffett wrote in 2002 that they were “financial weapons of mass destruction.” James Rickards wrote in U.S. News & World Report in 2012 that they should be banned. Yet Congress has not acted. This article looks at the current derivative threat, and at what might motivate our politicians to defuse it.
Three U.S. presidents were instrumental in establishing Thanksgiving as a regular national event. On October 3, 1789, George Washington declared the first federal Thanksgiving holiday. In 1863, Abraham Lincoln made it an annual federal holiday. And in 1941, Franklin Roosevelt signed a bill setting the date at the fourth Thursday of every November. All three presidents were giving thanks for bringing the country through a major financial crisis related to war, and they all achieved this feat through what Sen. Henry Clay called the “American system” of banking and finance – sovereign or government-issued money and credit.
For Washington, the challenge was freeing the American colonies from the imperial rule of Britain, then the world’s leading military power, when the new government lacked a source of funding. Lincoln faced a similar challenge, leading the Northern states in a civil war while lacking a national bank or national currency to fund it. For Roosevelt, the challenge was bringing the country through the Great Depression and World War II, when 9,000 banks had gone bankrupt at the beginning of his first term and the country was again without a source of credit.
In 1796, after 20 years of public service, George Washington warned in his farewell address to “cherish public credit” and avoid “accumulation of debt,” and to “avoid foreign entanglements” (“steer clear of permanent alliances with any portion of the foreign world”). He would no doubt be alarmed to see where we are 227 years later. We have a federal debt of $33.7 trillion, bearing an interest tab of nearly $1 trillion annually — over one-third of personal tax receipts. And we have a military budget from “foreign entanglements” that is also approaching one trillion dollars, devouring more than half the annual discretionary budget. Meanwhile, according to the American Society of Civil Engineers, the country is in serious need of infrastructure funding, tallied at $3 trillion or more; but our debt-strapped Congress has no appetite or capacity for further infrastructure outlays.
However, Washington, Lincoln and Roosevelt faced financial challenges that were equally daunting in their day; and the country came through them and continued to thrive, using a funding device that Benjamin Franklin described as “a mystery even to the politicians.”
When the FDIC put Silicon Valley Bank (SVB) and Signature Bank into receivership in March, a study reported on the Social Science Research Network found that nearly 200 midsized U.S. banks were similarly vulnerable to bank runs. First Republic Bank went into receivership in May, but the feared contagion of runs did not otherwise occur. Why not? As was said of Lehman Brothers fifteen years earlier, the targeted banks did not fall; they were pushed, or so it seems. One blogger shows how even JPMorgan Chase, the country’s largest bank, could be pushed — not perhaps by local short-sellers, but by China. And that is another good reason not to provoke the Chinese Dragon into “war by other means.”
“Rather than collecting taxes from the wealthy,” wrote the New York Times Editorial Board in a July 7 opinion piece, “the government is paying the wealthy to borrow their money.”
Titled “America Is Living on Borrowed Money,” the editorial observes that over the next decade, according to the Congressional Budget Office (CBO), annual federal budget deficits will average around $2 trillion per year. By 2029, just the interest on the debt is projected to exceed the national defense budget, which currently eats up over half of the federal discretionary budget. In 2029, net interest on the debt is projected to total $1.07 trillion, while defense spending is projected at $1.04 trillion. By 2033, says the CBO, interest payments will reach a sum equal to 3.6 percent of the nation’s economic output.
On CNN March 14, Roger Altman, a former deputy Treasury secretary in the Clinton administration, said that American banks were on the verge of being nationalized:
What the authorities did over the weekend was absolutely profound. They guaranteed the deposits, all of them, at Silicon Valley Bank. What that really means … is that they have guaranteed the entire deposit base of the U.S. financial system. The entire deposit base. Why? Because you can’t guarantee all the deposits in Silicon Valley Bank and then the next day say to the depositors, say, at First Republic, sorry, yours aren’t guaranteed. Of course they are.
… So this is a breathtaking step which effectively nationalizes or federalizes the deposit base of the U.S. financial system.
The deposit base of the financial system has not actually been nationalized, but Congress is considering modifications to the FDIC insurance limit. Meanwhile, one state that does not face those problems is North Dakota, where its state-owned bank acts as a “mini-Fed” for the state. But first, a closer look at the issues.
1176. 10-22-23, 10:45 am, speaker, The Weston A. Price Foundation’s 23rd Annual Conference, Kansas City, Missouri.
1175. 10-19-23, The Final Banking Solution, with Simon Thorpe and Colin Maxwell on The Vinny Eastwood Show, YouTube, Australia.
1174. 8-22-23, 10 am, Claremont, CA, Cobb Institute Center for Process, power point presentation: “Restoring Prosperity with a Financial Transaction Tax and Publicly Owned Banks.“ Zoom link is here.
1173. 6-15-23, NIB Zoom town hall, National Infrastructure Bank Coalition.
1172. 5-22-23: Radio interview, 9:30 am est, The Power Hour.
1171. 5-17-23: TV interview, CGTN America, Global Business: “Banking industry in hot seat during Congressional hearings.”
1170. Apr 27, National Infrastructure Bank Coalition webinar, “How to Build the Nation: National Banking vs. Privatization”
1160. 3-16-23, 5 pm pst, National Infrastructure Bank Coalition Town Hall, “Restructuring the American Workforce in a Time of Financial and Economic Turbulence.”
1156. 2-25-23, 15:00-17:00 GMT (Ireland), Think Local Conference 2023, Panel 3 – Money & Economics – New Paradigms
1155. 2-16-23, 5 pm pst, National Infrastructure Bank Coalition, “Washington, Hamilton, Lincoln: National Banking and the Economic Demands of Today’s Crisis,” NIB Zoom Town Hall
1130. Mar. 31, Power Point presentation on youtube, Universidad Nacional de Colombia, Invita: Debates Ensayos de Economia Coordina: Guillermo Maya — Profesor adscrito al Departamento de Economia
1115. Feb. 23, 7 pm est, Eco Justice Collaborative Webinar, “Why the Crises We Face Make Financial Reform Essential,” Religious Society of Friends, Philadelphia
1114. Feb. 17, 11 am, Steff Overbeck, Pod of Gold radio interview
1113. Feb. 18, radio interview, Phil Mikan, wlis1420
1112. Feb. 16, National Infrastructure Bank Coalition Presidents’ Day Webinar 2021 – “National Infrastructure Bank: Standing on the Shoulders of Giants”
1111. Feb. 6, radio interview, Sylvia Richardson, Latin Waves
1097. Oct. 26, Phil Mikan Show, WLIS/WMRD Radio, Conn., pre-recorded for Friday at 10 est or Saturday at 9-11 est
1096. Oct. 22, 1:15 pm EST, power point presentation, “Public Banking, Modern Monetary Theory (MMT) and the National Debt,” Carolina Hills Community, Chapel Hill, NC
1088. July 15, 6 pm EST, Connecticut Public Banking Town Hall, livestream here
1087. July 13, Webinar, Center for Global Justice, “Why Public Banking Needs to Be Run as a Public Utility,” San Miguel de Allende, Mexico, 11am-1pm PDT
1086. Interview with Susan Johnson on public banking for Connecticut, WILI’s Let’s Talk About It Show, 5 pm EST
1044. Nov. 12, interview in New York with Max Keiser, Keiser Report, “Repo Markets and UBI”
1043. Nov. 6, 5 pm EST, The CivicLab Show with Tom Tresser, live@www.facebook.com/tomtree
1042. Oct. 23, 11:30 am-1:30 pm, luncheon presentation on public banking, League of Women Voters of San Diego, Tom Ham’s Lighthouse Restaurant, 2150 Harbor Island Dr., San Diego
1041. Oct. 22, Presentation on public banking, DSA San Diego, Unite Here Union Hall, 2436 Market Street, San Diego, 6-7:30 pm.
1006. Oct. 22, speaker with Gar Alperovitz at Praxis Peace Institute, “Changing the System: California’s Strategic Role in National Strategic Change,” Sonoma, CA, 276 E. Napa St, Sonoma. 7:00 pm.
1005. Oct 19-21, Bioneers Conference, panelist on Oct 20, 2:45 pm, Marin Center, San Rafael, CA.997.
999. Oct. 7, panel, Americans for Democratic Action of Southern California Annual Garden Party, 2-5:30 pm, Santa Monica, CA
998. Oct. 4, 7:30 pm, Living Economy Salon, panelist, Public Bank LA: “Solutions for Social and Environmental Justice”, 3110 Main St., Annex Building C 2nd Floor, Santa Monica, CA 90405
997. Oct. 3, interview on Unmediated, podcast of Reader Magazine, episode title: Making Money The Public’s Slave (The Public Banking Solution), 10 a.m. PT
Dollar Reset 2.0: Stablecoins, Treasury Bills and the Case for Public Banks
The Digital Dollar Drain, image by ScheerPost
Washington’s stablecoin strategy could shore up the dollar by making U.S. Treasury bills the backing for a new digital currency. But who gets the interest, and who will make the loans?
For several years, “the death of the dollar” has been a persistent headline, with compelling data to back it up. The dollar’s share of global foreign exchange reserves has slipped from over 70% in 1999 to about 57% today. Last spring, gold overtook U.S. Treasuries as the largest asset in foreign central bank reserves for the first time since the mid-1990s. The BRICS nations are settling more of their trade in their own currencies, and the U.S. has used the dollar as a sanctions weapon so often that friendly nations as well as rivals are looking for a way out. A topic once confined to gold bugs and doomsday newsletters has gone mainstream.
At the Federal Reserve’s Jackson Hole symposium in August, however, a paper by Eswar Prasad and colleagues highlighted a different set of data. Yes, the dollar’s share of central bank reserves has fallen, and foreign central banks’ Treasury holdings have stayed flat at around $4 trillion. But foreign private holdings have risen from $1 trillion in 2010 to more than $5 trillion today. The world isn’t dumping the dollar so much as changing who holds it. And the authors expect stablecoins to accelerate that shift, by driving global demand for dollars into the U.S. Treasury bills needed to back them. The dollar may not be dying so much as being re-engineered.
According to financial strategist Matt Dines, who attended the recent G20 meeting of finance ministers and central bank governors in Asheville, a “dollar reset” is underway. His thesis is that Washington isn’t trying to prop up the old dollar so much as to build a new one on a different foundation – a foundation that is the very debt everyone is so worried about. In August the national debt passed $40 trillion, with annual interest of over $1 trillion.
The notion that government debt can be an asset isn’t new. A Treasury bond is a debt of the government, but it is an asset to whoever owns it. The idea goes back to Alexander Hamilton, the first U.S. Treasury Secretary. Faced with a crushing Revolutionary War debt, he turned it into an asset by accepting it as three-fourths of the payment for stock in the First Bank of the United States. The debt thus became the capital of a national bank that generated credit for the nation.
The new dollar reset would do something similar on a global scale: Treasury bills, a portion of the national debt, would become the assets backing the world’s digital trade currency.
The View from Asheville
The G20 meeting in late August was hosted by Treasury Secretary Scott Bessent and attended by new Federal Reserve Chair Kevin Warsh. The official agenda was growth, deregulation, energy security and sovereign debt. But Dines came away with a bigger takeaway, which he laid out in a video titled “Quantitative Credit Guidance: G20 Says Growth Is the Only Way Out.”
His reading is that the officials now running U.S. monetary policy have concluded that the debt cannot simply be inflated away with another round of quantitative easing, as it was after the 2008 financial crisis, when the Fed created trillions of dollars that mainly inflated stock and bond prices on Wall Street. As a ZeroHedge summary of Dines’ thesis put it, “The QE period is over.” The way out is to “provide credit to those who have capacity (Main Street),” with credit steered into factories, infrastructure and productive investment rather than financial speculation.
Dines draws on economist Richard Werner, whose Princes of the Yen showed how Japan’s central bank used “window guidance” to steer bank credit into productive industry. What matters, Werner argues, is not just how much money is created but where it goes: credit for buying existing assets inflates prices, while credit for producing new goods and services creates growth without inflation.
Bessent said, “The only way for us to get out of this is to grow our way out of it.” Whether that kind of growth is achievable is debated. But supporting economic growth is only half of the new dollar plan. The other half concerns the plumbing of the dollar itself – what backs it in trade.
Your Dollars Are Your Bank’s IOUs
Most of the money we use today is not government-issued cash. It is bank deposits, and a deposit is a liability of the bank, its promise to pay dollars on demand. When a bank makes a loan, it doesn’t lend out someone else’s savings. It credits the borrower’s account with a new deposit. The loan is the bank’s asset; the deposit is its liability. That is how the money supply expands.
When the depositor asked for his money, historically the bank paid with gold or silver. Today it is Federal Reserve reserves – digital balances held by banks at the Fed, or the paper notes into which reserves can be converted. Deposits are only a promise to deliver that “real” money, and no bank holds enough of it to pay everyone at once. The system works because depositors don’t all ask for their money at once, and because deposit insurance and the Fed stand behind it.
When confidence fails, however, a bank can fail even if its assets look safe. Silicon Valley Bank held long-term Treasuries and mortgage-backed securities, about as safe as assets get. But when interest rates rose, those bonds lost market value. In March 2023, depositors tried to withdraw $42 billion in a single day, and SVB couldn’t sell its bonds quickly enough at a sufficient price to cover the demand. The bank was gone within 48 hours. The 2008 financial collapse was worse, because the assets were subprime mortgages that were hardly marketable at all.
Dines notes that the dollar traded globally has long been “liability-based.” The vast offshore “eurodollar” market runs on dollar IOUs created by banks in London and elsewhere, banks that lack reserve accounts with the U.S. central bank and are beyond the reach of U.S. regulators. When that market froze in 2008, the Fed had to open emergency swap lines to foreign central banks to keep it from collapsing. According to Dines, it is that “liability-based” system that is being left behind.
Changing What Backs the Dollar
The GENIUS Act, signed in July 2025, set up an alternative to liability-based dollars backed with bank IOUs. Regulated dollar stablecoins are backed one-for-one with cash and short-term Treasury bills. In a June podcast, Dines said the Act pulls the dollar toward “an asset-based definition,” a dollar that “anchors back and is reserved one to one with U.S. Treasury debt.” The old offshore dollar is “being left out to dry.”
When the GENIUS Act was signed, Treasury Secretary Bessent declared that “the dollar now has an internet-native payment rail that is fast, frictionless, and free of middlemen.” (A payment rail is the network that carries money from one account to another.) He predicted a “surge in demand for US Treasuries, which back stablecoins.” In November 2025, he projected that the stablecoin market, then about $300 billion, “could grow tenfold by the end of the decade.”
Most stablecoins are held overseas, many by people and businesses seeking a currency more stable than their own. A business in Argentina or Nigeria that wants dollars buys dollar stablecoins. The stablecoin issuer then takes that money and buys U.S. Treasury bills. The world’s appetite for dollars thus becomes an appetite for U.S. government debt. In the new stablecoin model, the Fed would no longer need to buy Treasuries with reserves newly created through QE, because a global network of digital dollars would be buying them instead.
An Asset-Backed Dollar? Not Quite, But Close
Technically, a stablecoin is also a liability: it is the issuer’s promise to redeem your token for a dollar. When you hand Circle, the issuer of USDC stablecoins, $100 for 100 USDC tokens, Circle owns the Treasury bills it buys with your money. You just own a claim on Circle for that sum. The shift then isn’t really from a liability to an asset. It’s from a liability backed by private loans to a liability backed by public debt.
But that is still a meaningful difference. Under the GENIUS Act, stablecoins must be backed one-for-one by cash, bank deposits, overnight repos or Treasury bills maturing in 93 days or less. The issuer can’t lend the money out or buy ten-year bonds that lose value when rates rise. There’s no “maturity mismatch” and no “fractional reserve” problem. If everyone redeems at once, the money is there. An SVB-style collapse from long-dated bonds losing value isn’t supposed to be possible.
But the safeguard isn’t perfect. In fact, the biggest scare in the regulated stablecoin world came from SVB itself. Even stablecoins need banks to hold their funds, and in March 2023, Circle had $3.3 billion of USDC’s reserves sitting on deposit in SVB. USDC broke its dollar peg, falling to about 87 cents, until regulators guaranteed the deposits. But with reserves held mostly in short-term Treasuries, the stablecoin structure is still sounder than the bank money it would replace.
There are, however, other problems with the new plan.
Who Gets the Interest?
Bessent promised a payment rail “free of middlemen,” but this isn’t actually true. The stablecoin issuer is the middleman, and it is enormously well-paid.
When you give the issuer a dollar, it gives you a token worth a dollar and puts your dollar into Treasury bills paying 3% to 4%. But you get no interest. In fact, the GENIUS Act prohibits issuers from paying interest to holders. In effect, the issuer has borrowed from you at zero interest and lent to the government at the market rate.
The results are spectacular – for the issuer. Tether, the largest issuer, reported more than $10 billion in net profit for 2025, with a staff of just over 100 in 2024. It holds over $120 billion in U.S. Treasuries, making it one of the largest holders of U.S. government debt in the world. Circle, the issuer of USDC, reported $2.7 billion in revenue for 2025, about 95% of it from interest on reserves.
Scaling that up to Bessent’s $3 trillion market, the reserves would earn more than $100 billion a year at 3.5%. And the interest is paid by U.S. taxpayers, through interest on the federal debt. The public pays interest to private companies, so that those companies can issue the public’s own currency and keep the spread.
That’s the privilege known as seigniorage, the profit from issuing money, and it would be handed to a few private firms. Hamilton’s American System used public credit to build the productive economy. The private stablecoin model looks more like the British System of speculation and rent collection that Hamilton was trying to escape.
Stablecoins Move Money, but We Need Banks to Create Credit.
There’s a second problem with the stablecoin plan, which works counter to the “growth through credit” part of the dollar reset proposal. Dollars moved into stablecoins typically come out of bank deposits, which banks need to back their loans. The stablecoin issuer can’t lend that dollar back out. By law, it can only park it in safe, short-term assets, mostly Treasury bills. Money that was supporting loans to local businesses ends up financing the federal government instead.
An economy that is growing needs a money supply that can grow with it, and in our system that expansion happens when banks lend into new production. Stablecoins can move existing money around the world at lightning speed, but they can’t finance factories, farms, water systems or small businesses.
The Treasury’s Borrowing Advisory Committee has flagged trillions of dollars in bank deposits as potentially at risk of migrating into stablecoins. Hardest hit would be community banks, which depend on ordinary deposits. According to the FDIC, community banks hold 36% of small business loans and 70% of agricultural loans, though they hold only 15% of all bank loans.
So far, most of this risk has been overseas. Tether, two-thirds of the stablecoin market, is generally not sold to Americans, and Circle’s CEO has estimated that 70% of USDC use is outside the United States. Ordinary American savers have had little reason to trade an insured bank account for a token that pays no interest. But a loophole could change that. The GENIUS Act bars issuers from paying interest, but it doesn’t stop crypto exchanges from paying “rewards.” The Coinbase exchange pays customers a rate on USDC close to what Treasury bills earn, funded by the share of reserve income Circle pays to it. A checking account paying next to nothing can’t compete. Banks are lobbying Congress hard to close the loophole, for good reason: it’s the channel through which local deposits could be drained away.
A full-reserve stablecoin can only recycle existing dollars into government debt. So the two halves of the dollar reset pull against each other: one wants credit steered to Main Street, while the other drains the deposits Main Street’s banks need in order to lend. Werner has long argued that the most productive credit comes from small, local banks lending to local businesses, the model behind Germany’s Sparkassen and its strong Mittelstand of mid-sized firms.
Is there a way to get the benefits of digital dollars without losing the interest to private issuers or the deposits to the Treasury market? Two states are already testing an answer.
The Public Option: Wyoming and North Dakota
In August 2025, Wyoming launched the Frontier Stable Token (FRNT), the first stable token issued by a U.S. state. Like USDC and Tether, it is backed by cash and short-term Treasuries, in this case 102% of the tokens outstanding. The difference is in where the interest goes. Instead of going to private stablecoin issuers, the income from FRNT’s reserves goes to Wyoming’s school foundation program.
North Dakota is also doing something interesting from a public banking perspective. The Bank of North Dakota, the nation’s only state-owned bank, has launched its own Roughrider Coin. The Coin isn’t for retail customers, and the public can’t buy it. It is designed for the state’s banks and credit unions for fast bank-to-bank payments.
According to Startup Fortune, the system is designed to serve more than 90 North Dakota banks and credit unions. The transactions are recorded on the Solana blockchain, and banks reach the coin through Fiserv, the financial technology company whose software many community banks already use for their accounts and payments.
What the coin is good for is speed. The older ACH (Automated Clearing House) system processes payments in batches that settle overnight. Solana was chosen, the article says, for the “sub-second finality that overnight ACH rails simply cannot offer.” Banks can thus settle with each other almost instantly instead of waiting for the batch to clear. Critics such as Catherine Austin Fitts warn that putting deposits on a programmable ledger could make accounts easier to freeze automatically. For that reason public and community banks, answerable to local oversight, are better placed than Wall Street to build in human review.
Plugging the Deposit Drain
Transaction speed is good, but the risk to deposits remains. When the coin was announced, North Dakota Bankers Association president Rick Clayburgh warned that a stablecoin “can possibly drain deposits from an institution,” noting that deposits are “what’s used to loan money out.” What the Roughrider Coin has going for it is who sponsors it: a public bank whose mission for more than a century has been to support local lenders, not compete with them. According to Startup Fortune, community banks that have “spent a decade losing deposit share and talent to bigger rivals” now have “a stablecoin product they didn’t have to write a line of code for.” A bank that can offer digital-dollar payments through its own channel gives its customers less reason to take their money elsewhere.
For keeping deposits in the local lending system, however, a different tool is needed – and there is one, the “tokenized deposit,” an ordinary bank deposit recorded on a blockchain. It moves as quickly as a stablecoin, but it remains a deposit the bank can lend against, and it is insured by the FDIC up to the usual limit. JPMorgan has launched one for its institutional clients, and five regional banks have formed a network to exchange tokenized deposits that “do not leave the insured banking perimeter.” At the Jackson Hole symposium where the Prasad paper was presented, Pablo Hernández de Cos, general manager of the Bank for International Settlements, said tokenized deposits “preserve the tight link between deposit-taking and credit provision.” But he warned that smaller banks “might struggle with high upfront implementation costs” to create the tokenized deposits, with “knock-on effects for small business and local lending.”
That is a gap a public bankers’ bank could fill. BND already provides North Dakota’s banks and credit unions with correspondent services, including wire transfers, ACH payments and Federal Reserve settlement. With Roughrider, it has made a shared digital platform accessible to more than 90 financial institutions. It could likewise give them shared tokenization infrastructure: digital dollars that remain local deposits, available for local loans.
Echoing Hamilton
Combining what Wyoming and North Dakota have done, states could issue stablecoins for making payments, and keep the interest for public purposes. And public and community banks could do what stablecoins can’t: lend, creating new money for local businesses, farms and housing.
Hamilton would have approved. His First U.S. Bank wasn’t just a place to park the national debt. It extended credit to commerce and built the productive base that made the debt’s repayment possible. That was the heart of what came to be called the American System, as opposed to the British System of finance serving finance.
If the current Administration is rebuilding the dollar on a foundation of Treasury debt, as Dines suggests, the result could be sturdier money than the eurodollar IOUs it replaces. But growth takes a credit engine, and that means local banks with deposits to lend.
If a few private issuers keep the interest and share it with exchanges as customer “rewards,” the reset will have produced a new generation of princes of the dollar. But if more states join the ranks of issuers, working through public banks in partnership with Main Street banks, the reset could echo Hamilton’s reforms. A growing share of the national debt would be absorbed as backing for the world’s digital dollars, while public and local banks supplied the credit to grow our way out of the debt.
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This article was first posted as an original to ScheerPost.com. Ellen Brown is an attorney, founder of the Public Banking Institute, and author of thirteen books including Web of Debt, The Public Bank Solution, and Banking on the People: Democratizing Money in the Digital Age. Her 500+ blog articles are posted at EllenBrown.com.
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