Stablecoin Hypothesis: If you don’t have a military you don’t have a stable currency.

This is only half-true, especially in the case of the U.S. government. The U.S. Constitution is basically a contract between the people and the Federal and State governments: we grant certain powers to government, and in return we support our government, not only financially but also morally. Government power is well-defined and delineated, all other powers not defined are reserved by the people.

One of the powers that the U.S. government have is to maintain a standing military to protect against foreign aggression and to protect our interest abroad. Although the military has been used to conquer other lands in the past, the U.S. Constitution makes it very clear that the military is not to be used as a tool for expansion.

Our constitution makes a very clear separation between government and private entities. Most other countries do not. For example, in China there is practically no distinction: the government can own corporations, and in fact it does own large swaths of the Chinese economy. Moreover, there is no free speech and no free press in China. Our constitution protects free speech and free press. There is a “fourth estate” in the U.S., there is no such fourth estate in China.

My thesis is that it is in fact our freedoms that has made the U.S. the most powerful nation in the world. Without the clear separation between the government and private enterprise, we could not have become number one. I realize this goes against many analysts who claim that unlimited government power in China has made them achieve their current status as a major economic power (largest economy, but per capita income is much lower than any other industrialized nation). I do not think so. What happened, in fact, is exactly the opposite: China liberalized its economy by allowing businesses to make profits. It changed its laws to allow some separation between the government and businesses, and that’s what catapulted it to its current status. It will take a while for China to learn that more freedoms = more progress.

Going back to your thesis that one needs a military to create a stablecoin, let me address it by making two statements that I think are equally true:

1. Before the central bank came along, there were banks that provided the needed currency. With the intention of “protecting the public”, lawmakers enacted laws that made it difficult for banks to perform their duties beneficial to society; and that is providing currency according to demand. Subsequent erroneous analysis of the periodic crises (namely, that during harvest time there was always a shortage of currency, making life very difficult for both farmers and consumers) led to more destructive laws. The situation got worse, until a central bank, the Fed, was born. The Fed was supposed to be the last resort lender, and in return for that duty, it is given the power to create money from nothing. This is a socialist solution.
2. The Fed is a quasi-government entity. Technically it is a monopoly protected by government. Because it is the source of all USD currency, it has the power to control the quantity of USD in the world market. However, the way it normally controls the quantity of USD is not by means of something like “helicopter money” (increase the quantity), nor by confiscating USD from the public (to reduce the quantity). The Fed exists as an entity of a free market economy (I say the only socialist element in an otherwise free economy); as such, the way it increases or decreases the USD quantity is by buying or selling other securities (like government bonds) in the open market. To increase the quantity of USD in the economy, it buys security assets (take in assets, release USD in the economy); and to decrease, it sells assets (absorb USD and gives out assets in return for the absorbed USD). The quantities of assets bought or sold are LARGE, and could easily match the oil revenue of all OPEC countries in a single year. The Fed has unlimited USD, but limited assets, so there is potential for the USD to lose value, just like any stablecoin.

Because of these two statements, we can say that, although the military has indeed a role to play in the stability of the USD by way of protecting the U.S. mainland, that is not the end of the story. The military will protect any U.S. interest, according to the dictates of the Executive and Legislative branches, not in the interest of keeping the USD as the world currency, but because it is its constitutional duty to do so.

The USD is the world currency because of convenience and trust. The world trusts that the U.S. government would not go bankrupt, and that its government would not abrogate to itself the power of creating money. Although the Fed is a quasi-government entity, it is openly visible to the world that it is able to keep its relative independence. Besides, the world has experienced how stable the USD is, in so many decades (barring a Black Swan event).