How the Stablecoin Milkshake will Redollarize the World

There is no question that there is a quote unquote desire for ddollarization. The United States ability to use the dollar as the global reserve currency has bestowed upon them this exorbitant privilege. It's basically global senior and which is the ability to print money for anything you want if you want to get real simple about it. And as a result, that has engendered a lot of hate against the United States ability to do this. Because the whole world uses the dollar when they operate on the global stage, the United States can then use the dollar to influence the economic outcomes of other countries. And there's a number of other countries that don't like that. So there's great desire to get out from underneath the thumb or however you want to define the dollar as the global reserve currency. But the ability to actually do it is dramatically different than the desire to do it.

Brent Johnson is the founder of Santiago Capital. He's the creator of the dollar milkshake theory. He last appeared on Bankless almost 5 years ago. It's crazy we get to say that as a time reference. Brent, welcome to Bankless.

Thanks for having me back.

All right, first question. It's a high level, but I think it's the subject of the episode. Are we ddollarizing or are we redollarizing?

Well, I think individuals and perhaps certain entities may be ddollarizing, but on an overall basis, I believe we are in the process of dollarizing.

You were the father of the dollar milkshake theory. That's what we covered in our episode 5 years ago. Can you recap what that idea was in 2021 and how it played out?

Sure. So essentially the dollar milkshake theory was really a framework for how I thought a sovereign debt crisis would affect markets and asset classes. You know at the time interest rates were extremely low and had been trending down for 40 years. The debts had been trending higher for 40 years. And I thought we were at a place where the consequences of all that debt would come to four as interest rates for the first time in a long time started to rise.

And so the prediction was that interest rates would rise. That would cause the US dollar to rise because the whole world has so much dollar debt. That would cause a lot of volatility. It would lead to a sovereign debt crisis and ultimately you would see US assets outperform the rest of the world because on a relative basis it still had the best market structure, deepest capital markets, etc., etc. And so I thought the US dollar would go higher. I thought US assets, specifically US equities would go higher and I thought gold would go higher. And that's essentially what has played out from a directional standpoint. but we never got the crisis.

So, it's one of those things where I'm happy we didn't get the crisis. My life is better if we don't have a crisis. I don't sit here praying for the world to fall apart. But I think markets are structured in a way that you can't completely take that off the table. And so while the thesis perhaps didn't play out perfectly, it played out pretty well and has allowed me to kind of skate along these crazy markets for the last four or five years and kind of understand what was going on and why.

As you think back to it, why didn't we get that crisis?

Well, I think it ultimately comes down to the fact that governments and central banks are really powerful. You know, we like to think of them as a bunch of clowns and idiots who couldn't manage their way out of a paper bag. Yet, here we are. And I think when we automatically dismiss their capabilities, we do ourselves a disservice. Perhaps they're misguided, perhaps they're arrogant, and perhaps they believe too strongly in their own abilities, but these are not stupid people. And I think you know, perhaps they have a greater ability to to to manage things than than we like to give them credit for. And I think ultimately that is what has happened. They've been able to keep the plate spinning, kick the can down the road, and here we are.

There's always the addendum of so far, so far they've been able to do that.

That's right.

When you're imagining a crisis, what type of crisis did you have in mind? Is this sort of a sovereign debt crisis where like get into the particulars of that because I think people use that word and they mean different things often when they talk about debt crisis.

Sure. So essentially a sovereign debt crisis is when interest rates start to rise in a way that the government or the political system in that jurisdiction can no longer maintain control. And as the rest of the world or whoever it is starts to re or even the local citizens start to reject the local bond market, the currency is not far behind and you get into a situation where you know a sovereign debt crisis becomes a currency crisis. And if you look back throughout history, currency crisis eventually become political crisis because if you can't control the money in your jurisdiction, your administration is not going to last very long.

And so, you know, in the past when we've seen sovereign debt crisis and currency crisis, it hasn't been too long before the government fell and was replaced by either a new local one or some kind of a cobbled together consortium of of of the pre-existing parties. Uh, but long story short is political political crisis and currency crisis often go hand in hand.

As you kind of said, the kicking of the can down the road is something that we've just been watching the Fed do. I remember in 2021, as you alluded to, we were all kind of just poking fun at the Fed. It's like, man, they're such idiots. Zero interest rates for so incredibly long, distorting money. Oh, wait, no. They're whipsawing us into the highest interest rates in 30 years. And then the story of the last two years is like they had this narrow line to walk between inflation and unemployment to not get us into a recession. And seemingly they did that. They successfully kicked the can down the road. And so maybe they're just professional can kickers and that's just what they're they're good at doing.

My question to you Brent is do you think that that makes the what you I think what I understand from your opinion is that the crisis is nonetheless inevitable. Uh do you think that that makes the crisis worse and more acute or do you think the fact that they are buying the time they're able to diffuse the crisis the inevitable crisis across time? Do you think the crisis gets worse or better the longer they can save it off?

Well, ultimately I think it gets worse. And again to your point, this is mathematical. It is a mathematical certainty that we will have a crisis. And the reason is because of the design of our monetary system is one in which money is loaned into existence. And without getting in too far into the weeds of how this works, a system that loans money into existence has to grow because loans have interest attached to it. So there's never ever enough money to pay off all the loans plus the interest. And so you need a constant circulation of of the currency. If that currency stops circulating or in other words, people stay home, they sit they put their money under their mattress and they sit on it, that leads to a credit contraction.

And so you know this, it's funny that you ask or you say that that's what they are. They're professional cankickers. And in reality, that is what their job is. the primary role of any central bank, regardless of what it says on their website, regardless of what you were taught at business school, the primary role of every central bank is the perpetuation of the state. They are the lender of last resort. They are to come in because again, we're in this debt-based monetary system. When the debt stops moving or when the money stops moving, they have to step in and their job is to step in and kick the problem down the road. So, you have it exactly right. Now, it's never expressed that way professionally, but that is ultimately what their job is.

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Do you think they can instead of a crisis, do you think they can just let the air out of the tire in a more gradual fashion? We've had people like Lyn Alden on bank lists a couple of times before and she goes back to kind of the the 1940s, right? And you know, the the way the US got through its massive debt problems was basically like devaluing bonds, devaluing the dollar over time, but it didn't culminate in a massive credit crisis like the one that you're talking about, or is that encompassed in your idea of a crisis, like sort of the more gradual letting air out of the tire idea?

Well, I think they can they can let a little air out of the tire for short periods of time, but they they what they cannot do is over a 20-year period just kind of slowly unwind this thing. That that nothing is ever impossible, but that is extremely unlikely. And the reason is is because again, the design of the system, it mandates growth. And if you don't get the growth, all of a sudden you get these these shocks from a credit perspective. And when the when the credit starts to contract too quickly, then you get in a situation where they are not only trying to plug the hole, but they have to plug it in such a way that it starts growing again.

And that when when when you hear about central banks printing money, well that again this gets a little technical and we could probably have a whole debate on whether or not you know the creation of bank reserves is actually creating money or not. But the point is is that they have to keep it from contracting and do it in a way that not only stops the contraction but then starts it to expand again. Again, it it's kind of a systems level problem. The design of the system mandates that it is this way. So you can have short periods of time where the machine acts counter to what its design is supposed to do, but it can't operate counter to its design forever without having a big blow up.

Well, what about it? What about the idea that we can grow our way out of this? So AI is on the horizon. US leads kind of capital markets. What if we push from the 2% GDP growth, get to something like three or 4%. What what what numbers are really necessary? There is a way mathematically to grow our way out of this problem. Sure. What what numbers are we talking about and is that a possibility?

Well, no. If if if if you can grow at 3, four, 5% a year every year and and and the economy expands and as a result the credit within that economy expands, this can go on for a very long time. And this is why I always I always say, listen, I think that we will inevitably have a crisis, but I don't know for sure when it will happen, right? What I do know is that if you if you start with a number and you increase that number every year forever, you eventually will get an exponential curve that goes straight up. And everybody knows from a mathematical perspective, exponential curves either continue going up or they crash. They don't level off, right? But the timing of which this happens, you know, I I don't know.

And so, but to your point, if we have some kind of productivity boom, whether it's due to some new technology, some new energy source, perhaps it's AI, perhaps they do universal basic income, which solves some short-term problems while creating long-term problems. Perhaps they can, you know, kick this thing down another 5, 10, 15, 20 years. I I don't know for sure, but what I do know is that the system must expand in order to survive. Uh, and and I think those who continually bet against the central bank's ability to kick the can down the road, again, I think they're doing themselves a disfavor. I'm not saying you have to ascribe to them fantastic powers and the impossibility of messing up. I think they've proven that they mess up quite often. Um, but I also think we can, if you've been constantly calling for a crisis every year for the last 20 years, perhaps step back and realize they're a little bit better at their jobs than you would like them to be.

So largely, as you point out, and I I think it's very much true. Uh, Brent, you you were right as far as the direction of travel. I mean, US capital markets have overperformed just about everything else in the world. The dollar has been a wrecking ball. The dollar did drink the milkshake of other reserve currencies uh of the world since 2021 when you first started to popularize that idea. Let's talk about the setup now in 2025. People are saying that has started to reverse. We saw in the first half of 2025 the dollar was down 10%. People once again are saying okay the reserve currency power of the dollar is over. We've got a different dynamic too. We have Fed rates going down. I suppose when you came on in 2021, they were beginning their ascent up. I Yeah, I think it was around that time.

The case for darization also from a narrative perspective seems maybe stronger. And again, this is just from a narrative perspective, but we've got tariffs. We've got world the world right now is so overindexed to US capital markets. You wonder whether there would be a reversion to the to the mean here. We're at like 70% of all equities are US dominated. And you know, historically this never been it hasn't really been that high. You've got property rights issues. I' I'd put in this category sanctions. The sanctions against Russia where we went over and basically seized their tea bills. We we seized their treasuries. That was pretty unprecedented. We've got fraying alliances the world over. Like where is the European-American security alliance these days? We've got political instability in various pockets of the world including the US. We've got gold prices even going up. All of these people point to and they say these are indicators that the dollar is dying that the world is ddollarizing not just in pockets but from a from a global perspective. What do you make of our current setup in 2025?

Well, I think a couple things. Number one, there is no question that there is a quote unquote desire for ddollarization. The United States ability to use the dollar as the global reserve currency has bestowed upon them this exorbitant privilege. It's basically global senior and which is the ability to print money for anything you want if you want to get real simple about it. And as a result, that has engendered a lot of hate against the United States ability to do this. And so there is and and because the whole world uses the dollar when they operate on the global stage, the United States can then use the dollar to influence the economic outcomes of other countries. And there's a number of other countries that don't like that. So there's great desire to get out from underneath the thumb or however you want to define the dollar as the global reserve currency. But the ability to actually do it is dramatically different than the desire to do it.

And the reality is is that the US dollar network or the Euro dollar network, that's the network for dollars and dollar-based transactions that exists outside the United States, it's the biggest network in history. And while it's easy to say we're going to leave this and go do something else, it's extremely hard to actually do it. I would argue that the United or that the world is more dependent upon dollars today than it ever has been in the past. The Euro dollar market is bigger today than it ever has been in the past. The ability for countries to successfully leave the Euro dollar market without economic punishment as a result I would say is higher than it has ever been. And people will then point to things like China and Russia and the fact that they are doing some transactions you know outside the dollar and just amongst local currencies with each other. There is truth to that. There's no question that they are trying to do that. But by and large the Euro dollar network is still the preferred means of trade.

And it's much different when China and Russia try to do something than when Sri Lanka tries to do something or Turkey tries to do something or, you know, Bolivia tries to do something. And so, you know, to hold China and Russia up as perfect examples of the ability to ddollarize is, I think, to misunderstand the overall problem and the size of the of the issue. So I I think there's a lot made about the ddollarization from a narrative perspective and it is a popular narrative but from an actual implemented material change I think there has been very little ddollarization that has gone on.

Of those arguments that the dollar bears make which is the strongest to you the biggest argument is that there are let's just use the BRICS as an example because that's the most popular one I mean these are real economies with real resources. Real they they have they make up a large percent of the world's population. And so the idea that the United States can just ignore those countries, that's also wrong.

It's not that we can just ignore them. It's not that they're not important. It's not that they don't have economic power. They absolutely do. And so if those countries ever actually did get together and really work together in a cohesive manner and accept the pain that would come along with dd dollararization and and say no matter what happens, no matter how hard the economic blowback is, we are going to do this. then that would be an argument or or or or a situation that the United States would have to to take notice of. But I just don't again I think they're very good at going to conferences every year and say we are going to one day in the future do this but they've been saying the exact same thing for 15 years and they've never actually done anything or or or not much of a material consequence.

And so and part of the reason that they haven't is that the dollar network is the preferred method of private businesses all over the world. In other words, the United States didn't go to the world after World War II and say you have to use the US dollar on an international basis. The dollar was the global reserve currency. But nobody said that China and Turkey have to trade with each other using dollars. Nobody said Japan and the Philippines need to use dollars when they're trading amongst themselves, but the private market did it because it was the fastest, it was the cheapest, it was the most efficient, and it was the most commonly used form of money on the global stage. And so it was a private market solution to the problem. And so when you now have politicians on the top trying to say we are going to do something different, the private market has long ago rejected the idea of doing it that way.

Now that's not to say that these countries and their political systems are not powerful and that they could not impose certain requirements or regulations on the businesses within those jurisdictions. But it's again it's not as easy as and efficient as just saying we are no longer going to use dollars and we're now going to use rubles or real or whatever it is to to get everybody in the in that transaction and that supply chain to agree to new terms is a huge huge undertaking and one that largely again the market has already solved. So it's in in many ways it's it's it's a it's a government and politicians trying to solve a problem that doesn't exist.

Do we even know if for example China even wants this wants uh the trade uh and the rest of the world to denominate in the yuan because maybe it seems like oh well they probably want what we have because we have it and it's pretty cool for us is called an exorbitant privilege. Why wouldn't they want that? But at the same time we know that China actively discourages like overconumption domestically. Like they don't really want to have their populace be consumers. They want their populace to kind of have like grit and to work hard and not to have growth via consumption, which goes to which kind of just tells me that they don't exactly want the same things that we have. So, do we do we even know if China wants the yen to be like some sort of economic epicenter in the same way that the dollar is?

So, it's I think it's a pretty good question. And I don't know that they necessarily want it the same way that the dollar is. But one thing I would say is having the exorbitant privilege or having the global reserve currency. It is like having the one ring of power. Having the global reserve currency bestows so much power to that jurisdiction that it's really hard to imagine a politician who tends to be power-hungry to begin with saying, "I don't want that." Um, and the other thing I would say is that all of these countries who are critical of the way the United States uses the dollar um, as a weapon, for lack of a better way of saying it, they all use the exact same methods that the United States uses on a global basis. They use it domestically on their citizens. All of these countries operate fiat currency systems. All of these countries have central banks that loan money into existence. All of these central banks devalue their currency over time. The fiat currency loses value over time. So the idea that they're very happy to do it against their own citizens, but they're not would not be willing to do it to another country to me doesn't make a lot of sense.

But that doesn't necessarily mean that they necessarily, you know, want to replace the Euro dollar system with their currency overnight either. I I think there's perhaps again, we get back to desire versus ability, right? It's very easy to say, it's very easy for me to say, I don't want to play on the PGA Tour when I don't have the ability to play on the PGA Tour. Right now, if I was the greatest golfer in the world, though, it might be a little different. I might be showing up at Augusta wanting to play in the Masters. Um, so again, ability and and and and interest are are two different things.

Okay, let's let's sharpen that a little bit different and take the point that um ability to get away from the dollar versus um interest uh which is which is maybe high and getting away from the dollar these are two different things there there might be an area where countries have a greater ability uh in terms of a key function of money or a key function of the dollar right so economists generally think of a monetary instrument as having you know store value unit of account medium of exchange what if it's the case that the network effect of the dollar for medium of exchange and and unit of account is very high. But store of value at least store of value growth moving forward maybe that's less of a network effect or at least the the marginal you know store of value increase has less of a network effect lock in.

And this seems somewhat intuitive if you consider okay central banks have balance sheets. All of the BRICS countries have balance sheets and central banks. The question of what do they purchase or uh what is their portfolio their reserve asset portfolio is an outstanding question that I imagine they have to address on a uh on some regular cadence. And they could choose to purchase treasuries and US bonds or they could choose to purchase other store of value monetary assets. And we have seen gold appreciate a massive amount over the past year since 2021 including in 2025 this year. And some people have looked at the charts and they say well if you look at kind of gold appreciation and you look at the uh 2022 Russia sanctions starts appreciating right after those sanctions. Maybe the BRICS countries are looking at what happened with the sanctions, let's say, and marginally deciding that they want less treasuries moving forward and more gold, a store of value that the US can't censor or seize or freeze. What do you think of that? Maybe on the edges in the store of value use case, the the value of of or the the dollar network effects are fraying at some level. Do you think that's a an argument?

Yeah. So, so, so first of all, yes. The short answer is yes. And that that if you think about what the milkshake theory said, it's part of it because what I said at the time was the dollar and gold will rise together versus all other fiat currencies. What you have to remember about the currency markets is it's a relative gain. As one rises, it falls versus another one. Um, so the fact that the dollar can outperform all other fiat currencies yet still lose purchasing power on an overall basis and that's and and so I I think that is definitely possible that and if you go again if you go back to the the idea originally where I said interest rates will rise and we would have sovereign bonds be rejected or in other words they would not be bought to the same extent as they previous were. That is kind of what happens in a sovereign debt crisis. sovereign bonds are not bought to the same extent they were. Uh governments or individuals or institutions choose to buy something else other than sovereign bonds as a store of value as the currency loses value. So I I think we've seen that play out and I would expect that to kind of continue to play out.

But what I don't think we will see I don't think we will see a situation where the rest of the world decides to buy gold and euros and yen and yuan versus the dollar. They may choose not to buy any fiat currency or any sovereign bonds at all, but I don't think they're going to choose to buy Chinese sovereign bonds or European sovereign bonds or African sovereign bonds over US treasuries. Um, the other thing I would say is I I I find it maybe amusing is the right word to use is that it started off that the dollar is going to die. Well, then then the dollar is not going to die, but the dollar is going to lose global reserve currency status. Well, maybe it's not going to lose global reserve currency status, but it's going to lose global reserve asset status. And so I I I think everybody so badly wants the US or the US dollar to quote unquote fail in some form or another that every time it doesn't quite work out the way they thought it was going to previously, they come up with a new way to define its failure.

And the reality is is that for all of the problems that the dollar has and for all of the problems that the United States has, which they are legion, we we could spend 10 hours going over all of these on a relative basis, the dollar in the US still looks pretty good versus any other choice in the world, at least from a from a fiat currency perspective or from a government perspective. Now that doesn't change the fact that I think we will see things like hard assets whether that's gold whether it's you know copper whether it's other uh you know perhaps perhaps bitcoin plays a role I I I think there will be uh a continued awakening that fiat currency loses value and it's not necessarily a great long-term store of value and so other assets will become reserves as opposed to the traditional of of just buying sovereign bonds.

So to make that prediction concrete cuz another way I have seen the dollar bears maybe goalpost move to your point is to shorten the time window and they'll say Brent look at this year look at 2025 the dollar is down 10%. Do you expect that to continue or do you expect the dollar to regain that ground?

So it depends on timing. Um so I have not changed my opinion that this will ultimately end in the US dollar going much higher versus the other fiat currencies. So okay again part to to your point of of of a timeline when I first started talking about this was 2018 and the DXY the dollar index was at 89 at the time and now it's at 98 or 99 so it's 10% higher and yet everybody thinks it's dead or it's going to die, right? Um, it's 10% higher than when I first started talking about it, but everybody thinks that it's last, you know, this is it. This is finally at where it's actually going to finally, you know, get uh get destroyed. Um, but I I I don't know over the very short term. I could easily see the DXY go back to 96, 97, 95. I mean, that could that could happen in a couple weeks. Um, but ultimately, the way I think that this will play out is that the dollar will go higher.

And the reason not because the dollar is so great but because so many other parts of the world are in trouble. China continues to deal with an incredible debt deflation as a result of their overleveraged real estate market. Europe has an incredible amount of problems now with their declining industry and the fact that they're going to have to pay for their own defense going forward that they haven't had to historically. So China's going to have to print yuan. You know Europe's going to have to print the euro. you know, Japan will inevitably have to print more yen because, you know, they just don't have enough growth to support what they're doing. So, even if the US prints more dollars on a relative basis, if the rest of the world is printing as well, I think ultimately we get into a scenario where the dollar rises versus foreign currencies. Now, whether that happens in the next six weeks or the next six years, I'm not smart enough to know that. Um, but I I do I do not worry about the dollar going lower. If the dollar goes lower, that tends to signify that liquidity is plentiful, um that credit is being expended and that asset prices are probably rising. What causes volatility, what causes me to worry is if the dollar starts to rise because when the dollar starts to rise, it puts pressure on the whole world. And when pressure starts to build up, inevitably something breaks. So that's kind of the way I think about it.

When when we talk about people who think the dollar's dead, dollar's finally dead, dollar's going to zero versus the fact that the Dixie is up 10% uh in that time frame, aren't we kind of conflating two different things? Because there's dollars versus other fiat currencies, you know, and like the dollar is the worst currency except for all the other uh and then there's dollars versus a basket of goods, you know, uh a steak, food, gasoline, housing. And I think like it's I think you know the average listener myself will like oh yeah the dollar is trending towards zero versus all of the stuff that I need to buy in order to live but it's going up versus other fiat currencies which are just going to zero faster. So aren't aren't there two separate conversations here? There's the dollar is the best fiat currency to own and hold bonds in, but it's still not what I want to hold because it's not going up versus like any other investment asset that I'm going to hold.

Correct. Yeah, that's correct. And so again, you know, the dollar milkshake theory, ju just so we're clear in case anybody's kind of new to this, the theory was never that you should hold on to a bunch of dollars and just sit there and wait for them to go higher. But what it does say is that certain assets will perform a certain way based on the fact that the dollar will rise versus other foreign currencies. And the simple fact is if you look back at every crisis for the last 30 years, a global financial crisis of of some kind or another, it has always coincided with the dollar going higher. Again, the dollar going lower versus other fiat currencies is not something to worry about really from a markets perspective. But whenever we get into some kind of a crisis, the dollar goes higher.

And what I would say to to your so and because all fiat currency loses value over time. That is one of the reasons that we invest. It's one of the reasons we have a stock portfolio. It's one of the reasons we buy gold. It's one of the reasons we put money into real estate and crypto and other commodities is to to to as the fiat currency loses value over time, your portfolio rises and hopefully is outpacing inflation. But from a capital markets perspective, you know, I'm an investor. I manage portfolio. So, I'm interested in what capital markets do. And from a capital markets perspective, the United States dollar going higher versus foreign currencies is incredibly important, right? And because that is what causes things to break. It's what causes credit contractions and it's what ultimately causes crisis. And so, from a from a financial markets perspective, I don't really have the luxury of ignoring of what the dollar does. And in other words, I can't just focus on the fact that it tends to lose value over long periods of time. I have to focus on what it does on a more intim basis because that will affect all the other assets in which we have exposure.

One last pressure test of this from recent events Brent was a couple of times this year and I'm not recalling the exact dates but there was some sort of crisis type of event. may have been a Trump tariff announcement, may have been a war or you know some sort of event and what happened was something interesting. So there wasn't a flight immediately to treasuries and dollars. Those instruments actually went down during these crisis type events this year, these catalyst type events this year. Gold went up instead. Does that start to chip away in the thesis? I mean, the entire dollar milkshake theory thesis is when there's a crisis, people are going to stack dollars and they need dollars. But we saw a few times that didn't happen this year. Why?

Well, so I I think you have to be careful of equating dollars and treasuries. Again, the thesis was never that treasuries would rise. I always said interest rates would rise. If interest rates rise, treasury bonds fall. And that is treasury bonds falling whether they're US treasuries or foreign treasuries falling. That is what causes a sovereign debt crisis. Right? So a sovereign debt crisis is what the whole thesis was about is about bond prices falling as interest rates rise. Um now what what you're I think what you're talking about is in April when the tariff kind of tantrum kind of took off. There was a period of time where the dollar lost like 5% over a short period of time and US equities fell and everybody said this is unusual. This has never happened before. That's actually incorrect. The exact same thing happened in March of 2020 and the exact same thing happened in September of 2007.

So, and I'll explain why this happens. It goes into the fact that the rest of the world for a long time, let's call it 20, 25 years, has invested their surplus or their excess savings into the United States. You could argue that's an example of the milkshake, the United States sucking up the capital from the rest of the world, right? What happens then when you get into a slowdown or some kind of an initial crisis, especially if that crisis is not just localized in the United States, but if these foreign companies are also or these foreign investors who have their assets in the United States are also feeling pressure in their local