As I read this article, I kept feeling like I wasn't quite getting what he was saying. It is a little heavy on the jargon, so perhaps that's the problem.
Anyhow, I have heard it said that the reason the US has a trade deficit is because everyone wants dollars. Even if the US wasn't spending like a spoiled baby, it would still run a deficit. Mr Obstfeld doesn't think so:
The dollar's global role is not a primary reason that the United States has a big and persistent current account deficit, although dollar dominance does strengthen the dollar to a degree and so helps make the US balance lower than it would be otherwise. Reducing the US fiscal deficit materially and sustainably is the most important US policy prerequisite for global current account rebalancing.
There is a stablecoin angle here. Perhaps you have heard it said that the GENIUS act is the US Treasury's grand plan to get everybody to give the US a big ol' loan by letting them use stablecoins that all have to buy US debt by way of official reserves. Making an argument that reminds me of Voskuil, Obstfeld asks, "but what are they selling?"
But how will foreign residents obtain stablecoins? Residents of creditworthy countries could borrow or sell other domestic or foreign assets to foreigners and use the proceeds to buy GENIUS-compliant dollar coins. They might even hold dollar assets (such as Treasuries) already, which they could sell. In other words, countries with good international credit could fund their dollar stablecoin purchases—generally financial outflows—with financial inflows, implying no change in their current account balances.
Residents of less creditworthy countries who hold dollars in US accounts (often skirting domestic law) could simply spend them on stablecoins. Argentines reportedly hold $271 billion in offshore accounts (and stuffed in mattresses), which they could use to buy US stablecoins—but the offshore funds would come from their bank deposits, money market funds, or other US sources, perhaps resulting in little net increase in demand for Treasuries. In this case, too, there is no change in the current account of the country whose residents import stablecoins, just offsetting financial account credits and debits.
And also, Obstfeld asks what about all those criminal dollar billz stashed in mattresses?
A final source of foreign resources for stablecoin purchases is the stock of dollar bills—estimated at around $1.2 trillion dollars—that circulates outside the United States, mostly in the underground economy. This sum is a source of seigniorage for the US government, in effect representing an interest-free loan from the rest of the world worth nearly $50 billion per year at a 4 percent rate of interest (roughly the average Treasury borrowing fate). Were all those funds to flow into stablecoins—a technology for managing concealed cash that is far superior to the Argentine mattress—a big chunk of Treasury revenue would move to stablecoin issuers, who could realize their seigniorage gains by buying Treasuries.
Why is this more complicated than foreigners who want stablecoins will accept them in trade for their goods and/or services?
I think the Obstfeld guy actually stuck the stablecoin thing in the article in order to get clicks. His real point seems to be that the US has a trade deficit because it buys more stuff than it can afford, not because the dollar is globally used as a reserve currency.
As far as the stablecoin argument goes, he's saying a foreigner who wants a stablecoin, might sell a real US dollar or a US treasury to get it, in which case, the stablecoin isn't helping to finance the US via magic demand for US debt.
I like his last point there about stablecoins (even those that are compelled to hold US debt as reserves) are less money making for the US than good old dollars. The US gets a really good deal on a dollar that is held abroad, but it only gets a somewhat good deal on a GENIUS-Act stablecoin held abroad.
Yeah, that last point makes sense on a per-dollar basis. The advantage to the US of stablecoins is how much market share they might absorb.
As to the first point, isn't that just a consequence of the dollar being the reserve currency and inflationary? Americans get the dollars first, before global prices adjust, so the rest of the world's stuff seems like a relatively better deal to us. Plus, we are better able to deficit spend because we can print more money to cover our expenses.
I think his point is that people often blame the dollars hegemony for the US fiscal deficit when it is a question of political expediency and lack of discipline in reality that creates the massive debt.
America has been spoilt by its sole super power status and it is a heavy burden to hold such power.
The question of stablecoins is symptomatic of the US governments slide into expediency- USTs used to be highly desirable 'good as gold, in fact better' but today they are getting difficult to sell because everyone can see the economic and political decline America is in.
Stablecoins offer a cheap and nasty quick fix to the problem of selling USTs and funding the out of control US deficit spending that has become chronic and toxic.
By forcing stablecoin issuers to buy USTs the mountain of debt can be propped up a bit longer, but the rot, is nevertheless firmly established and will not be fixed but only papered over for a while by stablecoins.
USAs increasing use of military aggression and war crimes signals a decline that is creating an increasingly desperate and erratic response to the problem which remains living beyond your means and failing to respond in a productive trade centred way to the changing global economy and power dynamics.
Obstfeld's stablecoin analysis is basically rediscovering the Eurodollar system. Soviet banks in the 1950s parked dollars at Banque Commerciale pour l'Europe du Nord (SWIFT code EUROBANK, literally) to avoid US seizure risk, and that kicked off $13+ trillion in offshore dollar liabilities that exist completely outside the Fed's balance sheet. Stablecoins are just Eurodollars with better settlement rails. The seigniorage shift he flags at the end is the real story though. Right now the US captures ~$50B/yr in float from physical bills abroad. Tether alone already holds more Treasuries than most G20 nations. If stablecoins absorb that $1.2T in overseas cash, the seigniorage doesn't vanish, it just moves from the Fed to Circle and Tether shareholders.