yes! in various revisions in my mind of the foreign payouts tax idea, i’ve sometimes exempted equity and FDI because imbalances can resolve by revaluation on the balance sheets of parties knowingly willing and able to bear risk rather than disruptive default or revaluation of “safe” securities. 1/

in my current iteration, i think a foreign payouts tax should be universal (ie apply to equity and FDI), but countries that wish to encourage foreign investment in a meaningful, risk-bearing sense (as opposed to the “investment” of accepting paper for goods sold) can design particular carve-outs. 2/

the reasoning is that a blanket exception by category creates too urgent a game of whac-a-mole of foreigners hiding debt claims behind the “equity” of shell companies that hold debt. 3/

but if all foreign payouts are taxed by default (including capital gains), states can design particular, restrictive criteria for firms able to issue untaxed payouts to foreigners who will be meaningful risk-bearing investors, and understand macro adjustment risk as a risk they are bearing. /fin

any apologies are undoubtedly due from me! 1/

my model is that foreigners mostly hold US dollar assets because they believe they’ll be able to redeem them for goods and services they use in their own country when they need to. 2/

that emphatically does not mean, in the first instance, redemption for US produced goods and services. 3/

most foreign dollar holders expect they’ll be able to sell their dollars for goods and services from almost any country. 4/

but that begs the question, why do those third countries accept the dollar as payment for goods and services? they also expect they’ll be able to buy stuff, but what’s the bottom turtle? 5/

one answer to this question is there is and doesn’t need to be a bottom turtle. the US dollars centrality and conventional use in payments is enough for it to maintain value by a kind of momentum, it’s just a kind of confidence game, but a stable one. 6/

a fancy way of putting this is to impute the dollars value to “liquidity services” — it’s valuable because people treat it as valuable when they transact. 7/

i think this is certainly part of the story, but unsatisfying as a complete explanation. crypto dudes (undercapitalized stablecoins) are constantly trying out the theory that money is a confidence game. inevitably there’s confidence until there isn’t. then there’s a run. 8/

a stable currency always in some way depends on some kind of backing value that, in extremis, can tame runs. 9/

for domestic currency, it’s the state’s credible commitment to manage redeemability for consumer goods at a price level, the ability of currency to satisfy the skein of debts the banking engenders, and in extremis the state’s ability to tax to create demand for its scrip. 10/

what undergirds value for foreign holders, though? the issuing state’s commitment to stay redeemable for domestic consumer goods at a price level means much less, since most domestic consumer goods foreigners can’t use. (e.g. redeemability for US rent and healthcare). 11/

the state can’t tax foreigners. if there’s going to be an independent source of value to provide a backstop to the confidence game, it has to be some promise of redeemability denominated in tradables. 12/

(now i have traded one tweet’s worth of unclarity to an unlucky 13! sorry!) /fin

i don’t think we have to repay. we just have to service. we, like most enterprises, have a perpetual capital structure, people hold our paper. but to undergird the international value of our paper, it should be credibly redeemable for goods and services. 1/

and we shouldn’t be selling endlessly more, unless that more is financing assets that produce tradable goods and services of value greater than the value we mean to support of the paper we issue. /fin