Nik Bhatia is out with a new paper on stablecoins and from the summary it seems to be saying pretty much the opposite of the crumudgeonly Mr Obstfeld (#1470922).

Bhatia says that the US runs big deficits because it can't stop European banks from issuing dollar denominated debt which the US must implicitly backstop, even if it's shaky.

The Triffin Dilemma, first articulated in 1959, describes the structural bind at the center of this system. The country whose currency serves as the global reserve must run persistent deficits to supply that currency to the world, but those deficits erode confidence and accumulate sovereign liabilities held by foreign governments. Since the end of gold convertibility, the dilemma has expressed itself through structural current account deficits, growing foreign ownership of US Treasuries, and an industrial sector squeezed by persistent dollar overvaluation. Traditional reserve accumulation forces the United States to issue sovereign debt to every foreign central bank that wants to hold dollars. The Eurodollar system compounds the problem by multiplying those dollars through offshore credit creation that no American regulator can constrain.

There is this handy graph to demonstrate the problem, but I will admit, I either don't get it, or they switched the labels.

If the chart is demonstrating that there are $12-15 trillion in liabilities that the US cannot directly supervise, wouldn't the off-balance sheet debt either need to be roughly that amount or be greater than the on-balance sheet debt by that amount? I felt a little stupid looking at this chart.

Nevertheless, it seems that Bhatia sees GENIUS Act regulated stablecoins as the solution:

When a foreign individual or corporation holds a GENIUS-compliant stablecoin instead of a Eurodollar deposit, the underlying Treasury security sits on the balance sheet of a US-regulated entity rather than fueling offshore credit multiplication. The dollar-equivalent value circulates globally while the reserve stays home.

But all is not well (for US dominance) in the land of digital payments:

Global competition in digital assets strengthens the strategic case for stablecoins. China's digital yuan now pays interest to holders, and its Cross-Border Interbank Payment System processes transactions across 190 countries. The mBridge project is executing wholesale cross-border settlement almost exclusively in digital yuan. Europe's MiCA regulation provides a framework for euro-denominated stablecoins that is, in some respects, further along than US implementation. Each of these developments erodes American influence over the rails through which money actually moves, the most contested and vulnerable dimension of dollar dominance.

Bhatia has a five point proposal for asserting "stablecoin supremacy"

1. Harden GENIUS Act implementation by building a backstop architecture (committed repo lines with primary dealers and a pathway to Federal Reserve Standing Repo Facility access) that makes compliant stablecoins superior to offshore alternatives.
2. Export stablecoins rather than Eurodollar deposits in international trade settlement, channeling Treasury demand back onshore and eliminating the offshore credit multiplier on marginal dollar flows.
3. Develop a fee and rewards framework that allows regulated stablecoins to compete with interest-bearing Eurodollar deposits and the digital yuan without violating the statutory interest prohibition.
4. Address the DeFi credit multiplication risk through smart contract-level restrictions and enforcement chokepoints that prevent unregulated protocols from recreating the Eurodollar multiplier on blockchain rails.
5. Preserve foreign currency sovereignty by supporting local monetary systems alongside stablecoin adoption, ensuring the framework functions as shared economic development rather than financial coercion.

I haven't read the full paper, yet, but it sounds interesting.