The macro pro engages in a heated debate: can stablecoins really increase the currency multiplier? Why is this worth arguing about? What impact does this have on the coin market?

💠Pro viewpoint: can

Brother Wu believes that when a user pays 100 dollars to Circle, it mints 100 USDC for buying coins. After Circle receives the 100 dollars, it uses it to purchase US Treasury bonds as collateral. The U.S. government receives the 100 dollars, thus the 100 dollars are used for both buying BTC and by the U.S. government, fulfilling the currency function twice.

Original text:

💠Opposing view: cannot

The truant raised 2 examples.

Example 1: A user deposits 100 dollars into the bank and then uses the balance for consumption, but the bank cannot use the 100 dollars for credit loans and can only purchase U.S. Treasury bonds. In this case, it does not count as an increase in the money multiplier.

Example 2: The boss pays the employee $100, the boss's money is in bank A, and the employee's money is in bank B. If Bank A's $100 was originally to buy U.S. bonds, now the bank must sell the $100 U.S. bonds and then transfer the $100 to Bank B's employee account, but the U.S. dollars are actually in Bank B, and Bank B buys the U.S. bonds of $100, so the U.S. debt does not increase.

Original text:

💠Starting from credit creation by commercial banks, monetary derivation, and the money multiplier.

Brother Bee, using words that even 80-year-old grandparents can understand, explain it again to make it easier for some friends who are not in economics to understand.

Zhang San, a depositor, deposited his money in a commercial bank. For example, if you save 10,000 yuan, when someone takes out a loan, the commercial bank can lend out the money, of course, you can't lend it all. This part is reserved for reserves, which should be handed over to the central bank to prevent misappropriation by banks. For example, a commercial bank pays 500 yuan to the central bank (5% ), and then keeps another 500(5% for itself ) as a liquidity reserve ( to cope with a large number of depositors coming to withdraw money ) he lent 9,000 yuan to Li Si.

And then, Li Si can't just take 9000 yuan out to spend, right? He might take 900 yuan in cash, leaving the remaining 8100 to deposit back into a commercial bank. It doesn’t matter which bank it is; this bank also keeps 5% of the reserve at the central bank, retains 5% for itself, and then loans out the remaining 7290 to Wang Wu.

Wang Wu also kept 10%, put the remaining 6561 into the bank, the bank kept 10% again, and loaned the remaining 5904.9 to Zhao Liu.

Look, there is a total of 10,000 yuan. As a result, Zhang San has 10,000 yuan to spend, Li Si has 9,000, Wang Wu has 7,290, and Zhao Liu has 5,904.9. This is the credit creation of commercial banks. What is credit? It is the bank's trust in Li Si, Wang Wu, and Zhao Liu, so it lends them money, thus creating more dollars for social consumption.

9000+7290+5904.9, this is the currency derived.
The base currency is 10000.

If this country has only these four people, then the currency multiplier is equal to (10000+9000+7290+5904.9)/10000.

This is the content taught in the textbook. Of course, the formulas in the textbook are more complex, but since we are not taking an exam, we understand the logic of credit creation, money derivation, and the money multiplier.

The monetary multiplier reflects the extent to which the base currency is amplified through credit. The more prosperous the business, the more consumers are willing to spend, including using credit cards more frequently or taking out various loans for consumption and real estate. Enterprises are also more willing to produce more goods and are more inclined to borrow to expand production. With increased loans, in the example above, if Zhao Liu deposits money in the bank, it will lend it to Wang Ermazi... more currency will be derived, and the monetary multiplier will increase.

Therefore, the money multiplier and the economy have a positive relationship.

💠Why do we say that the US dollar stablecoin increases the money multiplier?

First, let's talk about the conclusion, note that it is not an opinion, but a conclusion. The US dollar stablecoin can increase the money multiplier.

🔹First level of credit relationship: occurs between the user and financial intermediaries.

Let's talk about the example of the truant king. A user deposits 100 dollars into a bank. The commercial bank uses this 100 dollars to buy US Treasury bonds, and the US government receives this 100 dollars. The US government will also spend this 100 dollars. For example, it spends this 100 dollars to pay employee salaries or purchases A paper from businesses. Then the employees or businesses receive this 100 dollars and deposit it back into the commercial bank. Don't you think this is another participation in the creation of commercial credit?!

However, if users directly buy U.S. Treasury bonds, it does not have this effect. Once users buy U.S. Treasury bonds, they cannot use them for consumption.

So, where is the gap? The gap is in commercial banks, which take the money deposited by users and then go to buy U.S. bonds. It's actually a credit here! The deposits received by commercial banks will be recorded in liabilities, liabilities, isn't this credit?

🔹Second layer of credit relationship: occurs between the financial intermediary and the borrower ( debtor ).

In textbooks, banks receive deposits from users and then lend them to borrowers, creating credit.

In the example 1 of the truant君, the bank receives deposits to buy US Treasury bonds. Don't forget, this is essentially lending money to the US government. Although US Treasury bonds are considered risk-free assets, they inherently possess credit attributes.

In the model of US dollar stablecoin, Circle receives user funds to buy US Treasury bonds, which is equivalent to lending money to the US government.

Therefore, a second layer of credit relationship has formed between the bank and the borrower, Circle and the U.S. government.

🔹Credit creation and currency derivation occur under dual credit relationships.

It should be very refreshing to see this, if you buy US Treasuries directly, there is only one layer of credit relationship. No credit creation.

If financial institutions receive deposits without reinvesting or lending out the money, this is also merely a single credit relationship, with no credit creation.

Credit creation occurs under a dual credit relationship!

Therefore, the first layer of credit in the US dollar stablecoin business is the relationship between the stablecoin issuing institution and users, while the second layer of credit is the relationship between the stablecoin issuing institution and the US government.

🔹The difference between stablecoins and commercial banks in increasing the money multiplier

First, the increase in the money multiplier for commercial banks relies on commercial credit; the increase in the money multiplier for the US dollar stablecoin relies on the credit of the US government.

Second, it is precisely because of the first point that commercial banks must set aside reserves and liquidity buffers, while US dollar stablecoins do not require excess reserves and are issued at a 1:1 ratio.

Thirdly, the credit creation of commercial banks is a diminishing cycle, where lending institutions will also deposit part of the funds into the commercial banking system, participating in credit creation again. However, the currency derived from U.S. Treasury bonds is unlikely to be used again for minting U.S. dollar stablecoins.

🔹A dynamic perspective on stablecoin expanding the currency multiplier

Some people may think that stablecoin issuers do not necessarily have to purchase U.S. Treasury bonds from the U.S. government, and they may buy them from the market.

Let's look at example 1 of the truant, the boss pays the employee $100, the boss's money is in bank A, the employee's money is in bank B, the bank uses the money to invest in U.S. bonds, and the U.S. debt is transferred from bank A to bank B, and the U.S. debt does not increase.

But this example does not seem suitable for discussing stablecoins, because in this example, the transfer from "Bank A → Boss → US Treasury" to "Bank B → Employee → US Treasury" does not increase the demand, whether for USD or US Treasury.

However, in the relationship of "USD → stablecoin → US Treasury bonds," with the development of the crypto market and the Web3 ecosystem, the demand for stablecoins is increasing, which in turn leads to an increase in demand for US Treasury bonds.

Therefore, whether stablecoin issuers purchase U.S. treasury bonds from the market or buy them directly from the U.S. government, it is highly probable that in the long term, the demand for stablecoins will increase, which will also promote the demand for U.S. treasury bonds.

Demand for U.S. Treasuries is rising. According to the supply and demand relationship, the U.S. government is likely to issue more U.S. Treasuries, increasing the credit relationship and generating more U.S. dollars.

Increased demand for stablecoins → Increased demand for U.S. Treasuries → Supply of U.S. Treasuries ( increases → Derives more U.S. dollars.

💠Why is this real?

🔹Promote M2 growth
Previously, Brother Bee mentioned that bull markets often occur during the phase of decelerating growth in the annual M2 growth rate. The annual M2 growth rate first enters an accelerating rise, and then gradually transitions to a decelerating rise. At this time, the economy and the speculative market enter a peak period of growth.

The US dollar stablecoin plays a role in expanding the money multiplier by generating more dollars through US Treasury bonds, which is beneficial for the expansion of M2. More derived dollars will flow into the real economy through forms such as government spending ) government employee salaries or government purchases (, promoting economic activity, and there will also be a certain positive logic for the speculative market.

Of course, this is talking about toxicity aside from dosage. The monetary multiplier effect brought about by the growth in demand for stablecoins may not be obvious, as we have analyzed earlier that USD stablecoins derive dollars through US Treasury credit, and this process is non-cyclical.

But:

🔹Provide buying support for U.S. Treasury bond issuance

The US debt is about to reach its limit. In order to maintain a balanced budget, the US government needs to set a new debt ceiling and issue more debt. The growth of USD stablecoins can increase the demand for US debt, which is beneficial for the supply and demand relationship of US debt to tend towards balance.

Of course, the growth in demand for stablecoins may not be explosive. However, a sustained and steady growth can just mirror the gradual increase in the issuance of U.S. Treasury bonds.

🔹The U.S. government tends to support and even encourage the cryptocurrency market.

Based on the above two logics, the US government is more inclined to support and even encourage the cryptocurrency market and the Web3 ecosystem.