Ruth Judson on Chasing Dollars Around the World

Episode Summary

Executive Summary: Ruth Judson discusses her Fed career and the evolution of money, currency, and global dollar demand. She explains how cash is supplied, why currency remains resilient despite digital payments, how COVID temporarily boosted demand, and why dollar stablecoins may reinforce dollar dominance abroad. The conversation also covers TIC data, custodial bias, counterfeiting, and the limits of monetary aggregates in modern policy.

Main Topics: Judson’s Fed career and data work (Priority: 5/5): She recounts roles in monetary affairs, open market operations, international finance, TIC data, and currency analysis, emphasizing her long-running work with data systems and automation. How U.S. currency is issued and managed (Priority: 5/5): The discussion explains that currency is supplied on demand to banks, treated as an autonomous factor on the Fed balance sheet, and managed through production, ordering, and note replacement decisions. Currency demand, COVID, and the persistence of cash (Priority: 5/5): Judson describes the pandemic-era surge in cash demand, the mix of foreign, domestic, and vault-cash hoarding, and the ongoing mystery of why cash remains widely held in a digital economy. TIC data, custodial bias, and foreign holdings of U.S. assets (Priority: 4/5): She explains what TIC measures, why Belgium/Euroclear can obscure the true owner of Treasuries, and how custodial bias complicates interpretation of foreign holdings. Counterfeiting and banknote security (Priority: 3/5): Judson reviews estimates of counterfeit notes, improvements in banknote design, and how modern security features have reduced counterfeiting substantially. Safe assets, dollar dominance, and stablecoins (Priority: 5/5): The conversation turns to global demand for dollars, the role of dollar stablecoins, Europe’s concerns about monetary sovereignty, and whether stablecoins will extend dollar reach. Why monetary aggregates matter less today (Priority: 4/5): Judson and Beckworth discuss the decline of money-demand modeling and monetary targeting, arguing that interest-rate policy and offsetting shocks have reduced the informational value of aggregates.

Key Arguments: Currency demand is still important because it is demand-driven, operationally central, and useful in crises even if it is not the main policy instrument. The Fed’s shift to interest-rate targeting and modern stabilization policy has weakened the observable relationship between money growth and inflation. COVID showed that cash demand comes from multiple sources at once: foreign demand, domestic precautionary demand, and banks’ need to stock vaults. TIC data are essential but incomplete because they only observe U.S. custodians, creating custodial bias that can misstate who truly owns Treasuries. Foreign demand for U.S. assets remains solid, but the foreign share can fall simply because Treasury issuance is growing so quickly. Counterfeiting is much less of a problem than in the past because banknote technology has improved and counterfeit estimates are far lower than older figures suggested. Dollar stablecoins overwhelmingly dominate the market and likely reinforce dollar standing, though their ultimate effect on dollar dominance is still uncertain. Europe’s concern about dollar stablecoins is understandable, but the best defense is to make the euro more attractive rather than trying to suppress demand for dollars. Cash still serves important roles in emergencies, privacy, and inclusion, so a fully cashless society would create risks. Stablecoins may be most useful in countries with weaker payment systems or unstable currencies, where they can function as a mobile substitute for cash or dollars.

Data Points: Fed career start: 1994 - Judson says she started at the Federal Reserve in 1994 in monetary affairs. COVID cash demand mix: About one-third foreign, one-third domestic, one-third vault cash - She describes the first three months of the pandemic surge in currency demand. Currency demand during COVID: Stayed super strong through 2020 and 2021 - Judson says the surge persisted longer than expected before easing in 2022-2023. Counterfeit notes estimate: Up to $30 million - She references her earlier estimate of counterfeit U.S. notes. Counterfeit estimate revision: Lower by a factor of 10 - Updated estimates were much smaller after better data and newer banknotes. TIC coverage: Treasuries, agencies, corporate bonds, U.S. equities, foreign securities held by U.S. residents, banking data, derivatives - Judson explains the breadth of the Treasury International Capital system. Foreign share of Treasuries: Falling share, but rising quantity - She argues foreign holdings can rise in absolute terms even as the share declines because issuance is so large. Dollar stablecoin market share: Roughly 90%-99% - Judson notes the overwhelming dominance of dollar-denominated stablecoins. TGA volatility before 2008-2009: About $5-$7 billion range - She says the Treasury General Account used to be constrained to a narrow band under scarce reserves. TIC data reports on overseas currency: Three Treasury reports in 2000, 2003, and 2006 - She cites the congressionally mandated reports on use and counterfeiting of U.S. currency abroad. Estimated share of currency overseas: Between half and two-thirds - Judson says this is the best approximation, though highly uncertain. CBDCs introduced globally: Four or five - She says only a few CBDCs have been launched and takeup has been minimal.

Pivotal Quotes: "It was largely like my work hobby." — Ruth Judson: She describes her long-running but not full-time focus on cash and currency issues at the Fed. "If the Fed's doing its job, you're going to lose all correlation between some instrument and what you're trying to control." — David Beckworth: He explains his view that monetary aggregates lose usefulness when policy successfully stabilizes prices. "The best thing you can do is make your own currency more appealing and stronger." — Ruth Judson: She argues that countries worried about dollarization should improve their own currencies rather than fight dollar demand directly.

Implications: Cash, TIC data, and stablecoins remain strategically important despite digitalization. For policymakers, the key issues are privacy, inclusion, financial stability, and preserving the dollar’s global role while improving data quality and payment resilience.