“He that is neither one thing nor the other has no friends.”
— Aesop’s Fables
When President Reagan announced his Strategic Defense Initiative (SDI) in a televised address from the Oval Office, it was met with derision.
Scientists explained that a plan to shoot down Soviet missiles from space using lasers and particle beams was simply impossible with 1980s technology.
The press sarcastically renamed his plan “Star Wars,” because it sounded as fictional as the soon-to-be-released Return of the Jedi.
Only one constituency took it as seriously as President Reagan: the Soviets.
Soviet scientists doubted their American counterparts could pull it off. But they couldn’t rule it out either, and the Kremlin wasn’t willing to take a chance that they might.
The Soviets saw Reagan’s plan as an existential threat — so much so that it forced them to the negotiating table.
“SDI is a key reason that the Soviets have been willing to negotiate cuts in offensive weapons,” the US Secretary of State said at the time.
By taking SDI so seriously, the Soviets transformed Reagan’s idea from sci-fi daydream into political reality.
“If the Russians keep appearing alarmed by SDI,” a contemporary study concluded, “it will be politically impossible for Congress to vote it down.”
In other words, the magnitude of the Russian response to SDI made SDI seem more credible to Americans.
Now, something similar may be happening with stablecoins.
In support of the GENIUS Act, President Trump has promised that “stablecoins will play a crucial role in ensuring the continued global dominance of the US dollar as the world’s reserve currency.”
As commonplace as that sentiment has become, there are reasons to be skeptical: The dollar is the world’s reserve currency because of America’s deep capital markets, predictable rule of law, independent central bank and trusted institutions.
If the world were to lose faith in these things, even trillions dollars of demand for US debt wouldn’t keep the dollar afloat for long.
Europe, however, has reacted to the GENIUS Act as if stablecoins are not only a lifeline for the dollar, but an existential threat to the euro.
Last week, the Financial Times reported that EU officials are now “rethinking plans for the digital euro” because the GENIUS Act makes stablecoins seem more threatening.
Specifically, EU officials are “considering running a digital euro on a public blockchain such as Ethereum or Solana rather than a private one.”
That is no small change for Europe, where some countries limit cash transactions to just €1,000, few object to the idea of CBDCs and law enforcement has long been prioritized over financial privacy.
But now it’s going to put their sovereign currency on Solana? To mix with memecoins???
Europe must really be worried.
One ECB official recently warned that “without a strategic response,” stablecoins could undermine Europe’s banking system, threaten its financial stability and even lead to “geopolitical dependency.”
(Note to Europe: Can we call this strategic response the Stablecoin Defense Initiative? Please???)
The ECB’s most senior official, Christine Lagarde, has similarly warned that if stablecoins are left unchecked, “central banks will struggle to influence the economy through monetary policy.”
If you still need evidence of the power of blockchains, I think we now have it.
Blockchain-based dollars have tied the EU in knots, with monetary officials now trying to figure out a digital euro that’s good enough that people will use it instead of dollar-denominated stablecoins, but not so good that they use it instead of bank deposits.
That’s a tough needle to thread — tougher even than hitting an incoming missile with a laser beam from an orbiting satellite.
The EU’s plans for a CBDC have been half-hearted, including ways to limit their usage, and its stablecoin legislation is similarly hedged, requiring issuers to hold deposits with banks.
The economist Luis Garicano says that a not-too-good-not-too-bad digital euro is “an unusual design problem” that leaves the ECB in “no man’s land.”
He characterizes the central bank’s position as, “we’re scared of stablecoins, but we don’t want to give a big advantage to a CBDC,” either.
This seems unlikely to end well: A digital euro that’s half-stablecoin, half-CBDC risks the fate of Aesop’s bat — by trying to be everything to everyone, it will be useful to no one.
But is Europe right to be that worried?
President Trump’s claim that stablecoins will significantly extend the dollar’s dominance sounds no more plausible to me than Reagan’s claims about SDI.
Back then, the scientists were proven right — Reagan’s lasers and particle beams were science fiction.
Even now, 40 years later, President Trump’s plan for a “Golden Dome” is not much more feasible.
