One of the arguments in favor of stablecoins is that they will “bring back” to the U.S. fugitive money which is now captive in the Eurodollar market. Exemplary of the argument, which is used by market strategists and U.S. government officials (including Scott Bessent), is a post on X by a self-defined “investor, constantly thinking about the future, which is mostly downstream of AI & crypto.”
“The eurodollar system (offshore dollar deposits held by non-U.S. banks) has historically been the largest pool of dollar liquidity in the world. Estimated to be around $14-$18 trillion range. This capital pool was completely outside the Treasury demand chain. A eurodollar deposit at HSBC London (or insert your preferred foreign bank) was a claim on HSBC & not on the U.S. government. HSBC could effectively choose its own asset allocation. Enter stablecoins. Stablecoins re-anchor offshore dollar holdings to U.S. sovereign debt directly. A USDT in a Hong Kong investor’s wallet is, mechanically (courtesy of the GENIUS Act), now a claim on the U.S. Treasury (via Tether’s reserve). This is a digitized ‘re-onshoring’ of the eurodollar system, in which every offshore dollar held in stablecoin form now translates into U.S. Treasury demand. Some perspective: If even 25% of the eurodollar pool migrates to stablecoin form by 2035, that translates to somewhere between $3.5-$4.5 trillion of new structural Treasury demand. Sufficient, on its own, to absorb roughly two years of net Treasury issuance at current pace. Stablecoins will recycle the offshore dollar and, in the process, help solve the U.S. fiscal situation. Hyper digital dollar maximalism.”
This is true, but it is only half of the story. The other half: It will destroy bank credit (the so-called “intermediation” in central bank jargon). Even in a rotten banking system, based on the Universal Bank model, such as the current one, banks extend loans to business and households (commercial banking), keeping touch with the lower curve of LaRouche’s famous [Typical Collapse Function](chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://larouchepub.com/eiw/public/1999/eirv26n30-19990730/eirv26n30-19990730_023-larouches_triple_curve_collapse.pdf) chart.
Take the example made by the X user, HSBC. Using HSBC Group’s 2025 balance sheet, loans and advances to customers are about $982 billion, while Trading assets are about $334 billion. This does not mean that the entire commercial side is serving the productive economy (loans to the Green Economy for instance are unproductive etc.), but these figures are useful to show that if deposits run away from “Eurodollar” player HSBC, that commercial side is going to shrink because it is based on those very deposits.
