Author: 0xCousin
Monetary Policy Has Always Been an Extension of Politics
Throughout history, currency has never been a neutral tool. From ancient monarchs privately minting copper coins to modern states controlling credit through quantitative easing, currency has always been an extension of politics.
Rome's "Silver to Copper" Transformation
In the late Roman Empire, to pay for massive military expenses and bureaucratic systems, emperors gradually reduced the silver content in coins, from 90% to 70%, 50%, 30%, and finally to almost pure copper "silver" coins. Essentially, the Roman Empire was taxing the entire population through devalued currency, a prototype of ancient inflation.
Emperor Wu of Han's "Three Precious Metals"
Emperor Wu's continuous wars against the Xiongnu led to an empty national treasury. With fiscal imbalance, the court attempted to change the "monetary form" by implementing the "Three Precious Metals" (gold, silver, and turtle shell coins), trying to bypass the traditional copper coin minting system to finance the war through monetary innovation. However, the market rejected this, causing monetary chaos.
Nazi Germany's "Mefo Bill" System
When the Nazis came to power in 1933, to escape the financial shackles of the Treaty of Versailles, Nazi Germany created the "Mefo bills". Through this monetary system, they hid fiscal deficits, circumvented international supervision, created massive national debt, and the public and businesses bore the financial risks of this "false prosperity".
Learning from history, we can understand the rise and fall. Throughout ancient and modern times, beyond military victories, the financial context has been hidden in dynastic changes. The chain-like evolution of "fiscal deficit - currency devaluation - regime collapse" continues to be repeated.
The United States' Separation of Powers
An empire's decline often begins with fiscal loss of control. Previous empires had governments that simultaneously held all powers of "printing money", "spending", and "regulation". During its founding, the United States tried to change this situation. The US implemented a "separation of powers" political system, with legislative power (Congress), executive power (President), and judicial power (Federal Court) mutually independent and balanced.
This "functional separation of powers" was also reflected in fiscal and monetary policies. To prevent government abuse of currency issuance rights, Congress passed the Federal Reserve Act in 1913, establishing the Federal Reserve and choosing to hand over the coinage right to the Federal Reserve. Fiscal policy is controlled by Congress, determining "how much and how to spend", with government departments responsible for execution; monetary policy is controlled by the Federal Reserve, determining "how much money to print and how to regulate", independent of presidential control.
Since then, the US government (Treasury) has held the national debt issuance right, and the Federal Reserve has held the currency issuance right. Fiscal policy is led by the US Treasury, mainly involving taxation, debt issuance, and spending; monetary policy is led by the Federal Reserve, macroeconomically controlling the economy through interest rate adjustments, buying and selling government bonds, and quantitative easing. The two are independent but occasionally cooperate, preventing excessive dollar issuance and ensuring the dollar's value.
This mechanism basically achieved the founders' ideal: fiscal matters belong to the government, monetary matters to the Federal Reserve, mutually checking and balancing to prevent "government manipulating currency for excessive power".
The Gradually Uncontrolled US Fiscal Policy
After two world wars, the United States became the only victorious country. In the context of globalization, the Bretton Woods system and the petrodollar settlement mechanism successively helped the US dollar establish its global reserve currency status.
From 1945-1971, the gold standard constrained US fiscal policy, as government spending was limited by gold reserves;
After 1971, with the end of the Bretton Woods system and the dollar no longer anchored to gold, US fiscal deficits lost substantial constraints, opening the "fiscal-monetary collusion" era - the government issues debt and spends, while the Federal Reserve prints money to buy government bonds.
The United States began operating fiscal deficits through a "debt issuance - money printing - global absorption" cycle. US fiscal expansion has now exceeded $36 trillion in national debt, with an average annual deficit over $1.5 trillion, and debt interest expenditure exceeding $1 trillion, becoming one of the largest single items in the federal budget.
US fiscal policy is gradually losing control, trapped in four major dilemmas:
First, debt dependency: fiscal policy can only roll over old debt with new debt, which may worsen if interest rates do not decrease;
Second, political compromise: both parties find it difficult to reduce spending, with Democrats wanting welfare and Republicans wanting tax cuts;
Third, Federal Reserve's rescue inertia: although the Federal Reserve appears independent, it has always printed money to rescue fiscal policy during crises;
Fourth, global de-dollarization impact: more countries are choosing to reserve gold and diversify foreign exchange, increasing US debt refinancing pressure.
Under these four dilemmas, the US government's demand for liquidity from the Federal Reserve is increasingly strong. Trump repeatedly tweeted demanding rate cuts, but the Federal Reserve continues to maintain "monetary policy independence".
Trump's New Trick: On-Chain Curved Coinage
The Trump administration is pushing the US Dollar Stablecoin Bill. Both the "Stable Act" and "Genius Act" allow issuing US dollar stablecoins based on US Treasury bonds.
If the US Dollar Stablecoin Bill passes, it would be equivalent to the US government obtaining "curved coinage rights". The logic of curved coinage rights for US dollar stablecoins is as follows:
1. The US Treasury has the right to issue national debt;
2. Issue US dollar stablecoins collateralized by national debt;
3. Convert US dollar stablecoins back to US dollars, forcing the Federal Reserve's monetary policy.
The US government can use the path of "national debt - US dollar stablecoin - US dollar" to covertly seize digital dollar coinage rights and interfere with the Federal Reserve's monetary policy independence.
In a sense, this could be a "hunting" of the Federal Reserve by the US government.
In multiple speeches, Trump stated he would abandon CBDC (Central Bank Digital Currency) and support US dollar stablecoins. Many people didn't understand the difference: CBDC is issued by the central bank (Federal Reserve), meaning coinage rights are still controlled by the Federal Reserve; while US dollar stablecoins allow commercial companies and banks to issue, but the underlying collateral is US Treasury bonds, which are issued by the US Treasury. Therefore, CBDC strengthens the Federal Reserve's authority, while US dollar stablecoins strengthen the Treasury's authority.
From the Trump administration's operations, there is a suspicion of "seizing coinage rights".
As an aside, the US Treasury could originally mint coins. US coinage rights are divided into two parts: US dollar bills are issued by the Federal Reserve, and US dollar coins are issued by the Treasury's "Mint". Previously, some suggested that the Treasury could mint a few platinum coins with a face value of $1 trillion, deposit them in the Federal Reserve account, and directly use them to repay debt or pay expenses. This was an early approach to seizing coinage rights. The White House rejected such ideas because they would cause market concerns about US dollar credit.
1. Will the US Government Really Seize the Coinage Right?
ChatGPT's response: It's not a matter of "whether" but "already in progress". Constitutionally permitted, Congress originally has the coinage right; politically willing, Trump openly opposes CBDC and supports US dollar stablecoins; fiscally needed, with continuous deficits and high interest rates difficult to bear; with implementation plans, such as minting on-chain stablecoins backed by government bonds; legally grounded, with stablecoin legislation in progress. Therefore, the key is whether the government can legalize and institutionalize this "soft coup" through an on-chain monetary mechanism and gain global market recognition.
2. Will It Cause US Dollar Instability?
ChatGPT's response: Not in the short term, as stablecoins are anchored to government bonds and commercial bank deposits, with the Federal Reserve still controlling interest rate anchors. In the medium to long term, it may shake the US dollar's credit structure, especially when the Treasury bypasses the Federal Reserve and continuously expands on-chain dollars, the dollar's value anchor will no longer be solely controlled by the Federal Reserve. If assets like Bitcoin or gold are introduced as stablecoin reserve anchors in the future, it could be the embryonic form of a "new Bretton Woods system".
