Author: Steven Ehrlich Source: unchainedcrypto Translation: Shan Oppa, Golden Finance

Washington is planning to impose user fees on foreign purchases of US Treasury bonds to lower the dollar exchange rate. But this could disrupt the global economy, thus strengthening Bitcoin’s value proposition.

In addition to tariffs, one of President Trump's iconic economy is to drive the dollar to depreciate. He believes that a depreciating dollar can promote economic growth by reducing borrowing costs and lowering U.S. export prices. However, unlike tariffs that fall entirely within the presidency’s terms of reference, the executive has limited control over the dollar exchange rate.

This power is mainly in the hands of the U.S. Federal Reserve system. Its Federal Open Market Committee (FOMC) holds eight meetings a year to adjust the federal funds rate, thereby affecting the U.S. dollar exchange rate. However, Washington, D.C. is pushing for a non-traditional proposal that could change Trump’s restrictions on the issue.

Proposal to change the dollar's pricing power

White House Economic Advisory Committee Chairman Stephen Milan, Trump's chief economic adviser, wrote a paper in November 2024, suggesting that the United States charges foreign investors to buy U.S. Treasury bonds to lower the dollar's exchange rate. This is intended to circumvent reliance on the Federal Reserve's interest rate cuts to stimulate economic growth. The proposal is part of the Mar-Lago Agreement plan, aiming to devalue the US dollar compared to other world currencies.

Steven Cumming, a senior fellow at the American Enterprise Institute (AEI) and former director of the Fed's international finance department, said: "The Mar-a-Lago Agreement" is a cooperative effort, and the United States and its trading partners can use this mechanism to jointly intervene in the foreign exchange market and lower the value of the dollar.

While this may seem like an academic discussion in international economics, it has a realistic impact on the $240 billion stablecoin market. The aggressive plan could undermine the $28 trillion U.S. Treasury market, the core of the global capital market and one of the pillars of rapid growth in the crypto economy.

If the plan is implemented, it may target foreign stablecoin issuers (especially Tether), thus making it the most competitiveAdversary Circle (USDC issuer) benefits. Furthermore, it may indirectly drive Bitcoin adoption.

The unprecedented proposal originated from Milan's proposal is based on the International Emergency Economic Powers Act (IEEPA), which was signed into law by President Jimmy Carter in 1977. The IEEPA gives the president the power to widely regulate economic transactions when security, diplomacy or economy is threatened.

Milan wrote in the paper:

"If the underlying reason for the overvalued US dollar is the demand for foreign exchange reserve assets, the Treasury could use the IEEPA to make this reserve accumulation less attractive. One way is to impose user fees on US Treasury bonds held by foreign officials, such as withholding part of interest payments."

However, he did not immediately propose to implement the measure directly, perhaps taking into account the unprecedented move in the United States. His primary goal is to convince foreign countries (many are already threatened by U.S. tariffs) to work voluntarily to reduce the U.S. debt burden by jointly lowering the value of the dollar. A core part of the plan is the extension of the Treasury bond maturity and even the introduction of 100-year Treasury bonds (“Century Bonds”).

Milan's proposal was inspired by the "Bretton Woods System" in 1944, when 44 representatives met in New Hampshire to reach an agreement to peg their respective currencies to the US dollar, which itself was tied to gold. The system lasted until 1971, when President Richard Nixon announced the U.S. withdrawal from the gold standard, ending the system. However, if others refuse to cooperate, Milan's proposal will prompt the United States to take unilateral action, such as collecting Treasury bonds to purchase user fees.

Tether Is it more expensive to buy US Treasury bonds?

If the proposal is implemented, the imposition of fees on foreign purchases of US Treasuries could directly increase the cost of Tether. Tether is an El Salvador-based company that is responsible for issuing $140 billion of USDT stablecoins. However, at present, this is unlikely to happen.

The proposal's documentary recommendations are only for U.S. Treasury bonds levied on foreign "official" holders, meaning private buyers (such as Tether) may be exempted. Tether purchased 331 in 2023The US dollar of US bonds currently holds a total value of more than US$94 billion, close to Mexico's US$99.4 billion, almost among the top 20 national debt holders in the world.

For Tether or other foreign buyers, direct costs are difficult to estimate. Unchained experts interviewed by Unchained would not speculate on the possible charges, highlighting the unconventional nature of the program. However, Milan proposed the starting fee to be 1% in the paper and gradually increased until U.S. Treasury demand drops to acceptable levels.

What does this mean in practice?

•Tether made a profit of US$13 billion in 2023 by pledging USDT assets to short-term U.S. Treasury and other assets.

•If charged at a 5% rate, Tether's profit will be reduced by $650 million.

•10% charge will result in a loss of $1.3 billion.

In addition, whether this restriction is really only for "official" buyers is still questionable.

Steven Cumming said bluntly: "This statement itself is not binding because it is not a complete plan at all."

Even if Tether is the target, it still has a trump card—US Secretary of Commerce Howard Rutnik. He is not only an investor in Tether, but also a long-term business partner of the company. Therefore, it is unlikely that Trump will approve this discriminatory tax on Tether, otherwise the biggest beneficiary will be Tether's rival, Circle.

It is worth noting that Circle was not invited to attend the first White House crypto summit on March 7. Circle CEO Jeremy Allaire was excluded due to pressure from Rutnik, people familiar with the matter said. The White House and Circle declined to comment, and Tether did not respond to an interview request.

What if the US dollar loses its global reserve currency status?

The broader problem is that the user fee orThe "Malaise Manor Agreement" may affect the US dollar's global reserve currency status and even change the long-term trend of the US Treasury market.

Academy Securities' macro strategy director Peter Tchir said in an interview with Unchained: "The worst case is that this user fee actually weakens the dollar's status as a reserve currency. People may think, 'This fee may not be a big deal,' but they will ask, 'What else will happen next?'" In recent years, the United States has been in a stalemate on raising debt ceilings, and often only uses plans to avoid debt defaults at the last minute. If the United States really cannot pay interest or principal, a debt default occurs, and global financial markets will fall into catastrophic turmoil.

When debt ceiling negotiations were extremely fierce in 2023, Tether and Circle had to transfer some of their funds into an "overnight buyback agreement" to reduce the risk of holding bad debts. After all, if their collateral depreciates or liquidity drys up, the two companies will be unable to redeem users’ stablecoins, causing USDT and USDC to decouple. In fact, if the proposal is implemented, U.S. debt may experience a "partial default".

Cumming notes that if the fee traceability applies retroactively to purchased U.S. debt, the holder will not be able to receive the entire interest originally promised, which is economically equivalent to a default.

If a certain person has purchased US Treasury bonds and is expected to receive a fixed return, and then suddenly increases the user fee, this seems to me as a debt default. On the contrary, if the fee applies only to future Treasury bonds purchased, the market will adjust the yield to compensate for the fee, which will not have any major impact.

In addition, this may severely disrupt the "yield curve". The yield curve reflects the cost of borrowing in the United States on different maturities. If countries refuse to cooperate, it may cause a decline in long-term government bond yields, and the cost of short-term government bonds will increase, resulting in short-term holders facing capital losses.

This may not only impact both Tether and Circle, but also weaken the collateral strategy of the entire stablecoin market, as U.S. Treasuries will be seen as more insecure assets.

The potential benefits of Bitcoin

— Larry Fink

This warning appears particularly timely, especially when trying to artificially manipulate the U.S. Treasury, which should be the safest and most liquid asset in the world, is the world's safest and most liquid. By contrast, Bitcoin offers a very different option. In fact, Bitcoin was born to fight excessive lending during the subprime mortgage crisis in 2007-2008.

At present, it is almost impossible for other stablecoins or fiat currencies (such as the pound, euro, yen or renminbi) to replace the dominance of the US dollar. The RMB may be the closest competitor, but due to capital controls, the RMB cannot be converted freely, limiting its potential for globalization.

So, in the long run, Bitcoin could be the biggest winner in this chaos.

In the past uncertain times, Bitcoin's short-term performance is similar to other assets, and will all decline as investors pour into the US dollar for safe haven. But in the current chaotic and unpredictable time, investors may finally have enough. Peter Ticill believes that at the beginning, the market may endure these effects, just like accepting a slap in the face and saying 'Another slap'. But behind the scenes, people will start looking for ways to bypass it. If you continue to follow this path, the real risk is here.