This article seems to be built on a few misconceptions.
It starts off with the claim that stablecoins are the modern-day 'digital gold standard' which they really aren't. Stablecoins are just tokens on a blockchain the vast majority of which are backed by US dollar cash and cash equivalents. There is nothing gold-like about these stablecoins. Maybe the article refers to the rumors that Tether isn't fully backed but this isn't clear from the article. As the article also mentions, the GENIUS Act requires compliant stablecoins to be fully backed (by US dollars) so the GENIUS Act would actually be the reverse of what Nixon did in 1971 by leaving the gold standard. The problem with the gold standard was that gold is a scarce physical asset that cannot just be created. There is no scarce asset involved in stablecoins so the comparison between stablecoins and the gold standard doesn't make much sense to me.
Then there is the claim that there are $13.2 trillion 'shadow dollars' circulating outside the United States via stablecoins which makes no sense given that the biggest stablecoin (USDT) only has a market cap of $143 billion (actually $158 now) which is also mentioned in the article.
The article then goes on to compare the GENIUS Act to the Nixon shock by 'turning off the stablecoin faucet'. It then correctly mentions that major stablecoin issuers already have freeze and burn capabilities so it becomes unclear how the GENIUS Act would 'turn off the stablecoin faucet'. From all I've read and heard so far people expect the passing of the GENIUS Act to lead to increasing stablecoin liquidity.
You know I agree. And it made me win far less from crypto than I would have if I weren’t a skeptic from the start. But recently something changed my mind:
Friends from an occupied territory visited on their travels and they said they can only pay with cash since their cards do not work in the let’s say „free world“ (my wording not theirs). And they said how difficult it is to live without a CC. You can’t get a hotel room in many places.
This made me reconsider my stance on using cash and I started doing it again just so it survives.
But let’s say cash goes away, in that case we _need_ an alternative that cannot be censored, blocked or otherwise cancelled.
And this could be Bitcoin (or let’s say litecoin - my favorite)!
But yes so many scams and as you say misconceptions everywhere. People don’t understand money and they think whatever promoters tell them to think.
The problem with an alternative currency like Bitcoin or litecoin, is that ultimately you still need to convert it into a national currency to make it usable.
Your friend from the occupied territory may be able to receive crypto, but they're still going to need a credit card to book a hotel room.
But that’s exactly what could and maybe should change.
I’m not really knowledgeable in this area but I think hotels want the CC in case visitors ruin the room. This could be covered by crypto based tech or services.
But my point was mostly about having money that cannot be taken away or frozen by policy.
This article was written because I suddenly remembered a story I wrote in 2018 to someone working in Singapore. As I also mentioned in the writing, it has a strong conspiratorial nature. However, I personally have such doubts.
Currency should fundamentally be exchangeable, but currently Tether and Circle exchange these for dollars and purchase relatively safe short-term government bonds from the US or China, making this arrangement seem natural. However, if they were to face a situation like a bank run or become unable to pay out $1, I think the analogy of a “water faucet” wouldn’t necessarily be incorrect.
Stablecoins are quite different from banks. Under the system of fractional-reserve banking, banks by definition only have reserves for a fraction of their user's balances. Stablecoins are meant to be fully backed and the issuers claim to be fully backed. In theory it is possible that the issuers are lying but in practice this seems unlikely. Running a stablecoin business seems to be a relatively inexpensive operation compared to the amount of money you can make by investing your reserves into short term treasuries in the current interest rate environment. Even if Tether wasn't fully backed in 2018 they should have made billions in profits since off interest rates and recovered their losses.
I still don't understand your argument how the GENIUS Act would turn off the 'faucet'. Legalizing and legitimizing stablecoins would presumably lead to more stablecoin issuance instead of a bank run.
Article does not make sense to me. Starts off with the Triffin dilemma; its definition of the concept as "the incompatible conditions that dollars must be supplied to the world, but at the same time, they must maintain trust and control" has nothing to do with the actual Triffin dilemma. The actual dilemma does talk about the need for the reserve currency issuer to supply the world with the currency, but the actual concept juxtaposes this obligation with the inevitable trade deficits which the reserve currency issuer incurs.
The Triffin dilemma famously led to the Nixon shock in the US which ended the convertibility of the dollar to gold in the 70s, due to massive US trade deficits making it impossible to keep 1:1 backing for the USD in gold. The Nixon shock is mentioned in the article, but not how/why is happened. Neither is there an explanation of what the "second Nixon shock" is.
There is some mention of EUR/CNY digital currencies; perhaps the point is that these can challenge the USD hegemony by creating alternate globally accepted payment systems, with the second Nixon shock being the "end of USD hegemony" scenario brought up every few years?
Came here to say this. I'm quite curious to know what the author means by "digital Nixon Shock".
If hard digital assets (i.e. assets the US have limited control over like BTC, ETH, etc) gets shocked by a liquidity shortage it should on the contrary kill more of the USD dominance, which will shock more hard assets, which will kill more of the USD dominance... a feedback loop leading to the obliteration of the USD hegemon.
What interests me is long-term, which nation/currency is optimal as reserve currency?(assuming no political/military factors)
Like theoretically, assume all countries can’t collapse. Should the reserve currency be primarily the countries with the most people? (think China/India/Indonesia/Nigeria) Most natural resources? (think Australia, China or Russia) Historical power? (UK) Linguistic network? (France)
Can we even derive a normative answer?
Do non-national currencies differ to national ones?
I’m not the biggest fan of economists, but I feel like research does need to be done here…
All the things you mention could be used to decide make no sense at all because you discounted "political and military factors", which are almost all that matters in choosing a reserve currency.
It's like asking which is the best CPU when you discount speed, price and energy consumption.
It is really even more than that because of the depth of the US bond market.
Nation states need to be able to make huge transactions without any one else holding the currency feeling it. That is what makes the reserve currency the reserve currency.
That can't be done without a massively liquid bond market and no one else is even close to the US.
Then the network of military bases and military power is just another layer on top of the US bond market.
Then on top of that the top competitor has capital controls.
Personally I believe that the days of the reserve currencies are close to over, and that they will go away with the going away of the oil trade.
The present situation is one where if one wants oil, which everybody does and has nothing to trade directly with the oil countries, must export something to someone else who either exports or sells something to the oil countries, or who in turn exports or sells something to someone who exports or sells something to the oil countries. I believe that once this ends trade itself will become less important. Today it's mandatory to get oil, but once we don't need oil, the export of goods to acquire dollars to buy oil becomes optional.
Consequently I see the future as one in which people will manufacture what they themselves need or want, instead of what sells abroad.
Won’t the reserve currency simply switch to being “backed” by some other fundamental productive input? And by switch I mean the world’s most militarily powerful country will ensure that countries producing this fundamental input denominate their exports of it in their currency, if they don’t want to risk being “liberated”.
Personally, my money is on semi-conductors. It’s currently sitting at #4 in total international trade value, behind automobiles (which are increasingly reliant on semi-conductor inputs), refined oil, and crude oil.
Certainly casts a new light on contention over Taiwan.
I don't think that can be done. A whole lot of countries, even some quite small ones, so it won't be possible to directly bully them all.
Secondly, these technologies usually have stages developed by different people. Microchips are a chain: different components from Europe, Japan and the US are put together into actually usable factories in Taiwan, South Korea, the US etc. The whole chain is needed. Obviously the US recently succeded in some bullying against Taiwan, but I think it was mostly about demand, threats of tariffs, that kind of thing, and I think that kind of threat again matters only because exports are necessary because of the oil trade. It'll be harder to bully with tariffs when trade matters less.
I also think bullying countries capable of doing useful semiconductor work is less possible, and I also think countries like China will catch up, so that much will be commoditized.
I see thing as being like the end of the bronze age. With iron there's nothing to control, so there's no path to power, with decentralization and independence as the result.
And even when they can, comparative advantages are still a thing.
That being said, I do agree that with a reduction in the need for oil, the importance and use of a reserve currencies will reduce even if they don’t go away fully.
Yes, but if you're not manufacturing a bunch of stuff for export, then you can also dedicate the resources used for that to build what you actually want.
Exports are more "expensive" for countries with reserve currency status. This is a problem for countries that export many primary and "low-tech" secondary sector products. Countries that export many "high-tech" secondary sector products can usually still thrive.
This leaves us with the usual suspects: US, China, Germany (-> EU) and Japan.
Given that minting the reserve currency grants a nation economic privileges (in terms of being able to lend at a lower interest rate and having foreigners want to sell you things so as to get your currency), perhaps one could argue for a populous developing economy like India.
Foreigners sell you things in exchange for your currency, because they want to hold the currency. Once a currency is usable for payment in taxes, it can be analysed like any other commodity.
There are no 'reserve currencies'. Anybody holding a financial asset in a denomination outside its home physical zone area is a 'reserve'. They are operationally no different from hoarding diamonds or gold bars.
There’s one crucial difference - countries can’t print new diamonds or gold bars at will. Whenever the US prints more dollars, it transfers value from hoarders of US dollars to themselves - they’re levying a stealth tax via global oil price inflation. Other countries do not have this ability - if they print more of their own currency it just leads to domestic inflation.
The US can effectively tax the world as long as they use their military power to ensure oil producing countries denominate their oil exports in US dollars.
The reserve currency system is a stealth tribute system.
"Just" a social construct are underselling it by quite a lot. There are, let's call them "commonly held beliefs", what happens when a country decides selling oil in anything other than the USD.
That may not be the complete story, and will likely not hold up forever, but the complexity should not be understated.
> Nothing appoints the dollar a reserve currency, it's use makes master.
Hundreds of US military bases around the world makes sure that no "stupid" leader of some nation makes a decision to switch from US dollar for international trade.
Those who dared to attempt to give up USD for trade, died horrible death like Muammar Gaddafi. It's a direct message to the remaining leaders: "Don't even think about it"
I see you’re being downvoted but I think you’re right.
The US reserve currency system allows the US to tax the world, whenever they print more dollars, via oil price inflation. Anyone without sufficient military power who tries to stop denominating their oil exports in US dollars ends up with freedom and democracy being brought to their country. Saddam Hussein switched to denominating Iraqi oil exports in Euros. Gaddafi tried to establish a pan-African gold-back dinar to denominate African oil exports in. And look how it turned out for them.
It’s a stealth tribute system. If you stop paying your tribute, the empire responds accordingly.
What I’m genuinely curious about is the recent trend of numerous countries announcing plans to create their own stablecoins. From news reports alone, I’ve seen China, Japan, South Korea, Saudi Arabia, and the United Kingdom, among others, pursuing this path.
If each country develops its own stablecoin, what would be the practical significance? I understand that dissatisfaction with the existing SWIFT system is driving this rush—everyone wants their own alternative. However, this raises a fundamental question: what will ultimately serve as the global standard?
The current trajectory suggests we’re heading toward a fragmented landscape where multiple sovereign digital currencies compete for dominance. While each nation naturally aspires to establish their currency as the international standard, this creates an inherent contradiction. Without coordination or convergence toward a unified system, we risk replacing one centralized system (SWIFT) with multiple competing systems, potentially creating more complexity rather than the streamlined efficiency these initiatives presumably seek to achieve.
The real question becomes: will market forces, political influence, or technological superiority determine which digital currency ecosystem prevails, or will we end up with a permanently fractured global payment infrastructure?
Stablecoins are just tokenized versions of exisiting currencies. Instead of settling through the current financial system which takes days for a global transaction you settle on a blockchain within seconds or minutes. These stablecoins will probably be issued on existing global blockchains like Ethereum so they might all be interoperable within a single system just like SWIFT currently supports multiple currencies.
There may be fortunes to be made understanding mechanics here, but to the more general audience a strategic awareness of the unfolding, decentralized financial landscape and relatively early intervention on the part of the US should be heralded with great relief to help stave off the dystopian network state so beloved by Balaji et al
I think the concern is that stablecoins are actually minting dollars, because they don’t appear to have $1 for $1 reserves of their stablecoin.
If you look at the Tether controversy where they were investigated by the government, the reason why they were able to sell was that they were no longer operating in the USA not that they had the proven reserves to back the currency.
IMVHO: cryptos rise because fiat money are considered less and less a trustable asset. People do not understand that behind stablecoin there is thin air, not differently than fiat money, but they trust more such thin air than the ones from official central banks.
The article does not make sense i.e. in a way a econ or fed watcher off the street could agree with or reject.
But it has enough planks in the marketing of stable coins by presenting it as close to power, growing in power, and because of that is in the throws of pains as it semi directly plus semi indirectly becomes bigger than visa + Mastercard and as it area-51-x-files its way into taking over the world as the alter ego to the usd reserve currency.
If it took place in 1785s and was in French it's the kind of close to power intrigue that yields the diamond necklace affair. Frankly, the French are better at telling stories.
This is a political marketing piece whether or not the op meant it or not.
So this article is a whole load of misconceptions all the way down.
It whitters on about the dollar supply being inflationary, then talks about gold standards.
THe whole point of abandoning the gold standard is to stop deflationary shocks.
But.
THe very act of creating stable coins is inflationary, as it increases the dollar supply[1]. The only difference is that (unless the "genius" act changes that) when a convertible coin crashes, there's no bailout mechanism.
[1] When someone buys a stable coin, they give the "banker" a $1 in exchange for a thing that is "worth" a dollar. The "banker" can, if they are careful, then re-spend that dollar. The token can be exchanged for goods/services worth $1. thus the money can be spent twice.
Of course this is also how investment banks work.
TLDR stable coins are not gold standard, and never were.
And inflationary money is not a bad thing. If the economy grows, the money supply can grow without it being devalued. For instance the Chinese money supply has grown enormously since the 90s, but the currency is still quite stable.
indeed! deflation and debt is a nasty nasty thing that causes a vicious feedback loop.
Also, as you point out a fixed money supply would have caused painful distortions in the Chinese economy, as the yuan grew in value (like 0.00001yuan for a cup of tea)
Taking a page from Nixon‘s playbook and then what? Redo the 70-80 period? Is that desirable and what could possibly go wrong?
Frankly while crypto and stable-coins may pose great risks the direct interference attempts of the master of the executive in tax, crypto and treasury policies is a far greater one.
> Redo the 70-80 period? Is that desirable and what could possibly go wrong?
To salvage and strengthen US hegemony, it was a fantastic move. Of course things can go very wrong. Power moves only work as long as you’re powerful. And they’re only cost effective if your victims fold.
During the last century, we have been handling systems that are so powerful they exceed what we could understand or control. This trend seems to accelerate. At least they (US govt) are making an effort to control this proactively.
USD predictably loses value over time. That means a stablecoin issuer can invest the gained fiat dollars in stable stocks, and make a reliable profit.
Gold can (and does) rapidly rise in value. An issuer of a gold stablecoin could only ensure avoiding bankruptcy by actually owning that amount of gold.
That would probably be difficult to do in practice. (And would also significantly cut into the profit potential of the issuer.)
This article seems to be built on a few misconceptions.
It starts off with the claim that stablecoins are the modern-day 'digital gold standard' which they really aren't. Stablecoins are just tokens on a blockchain the vast majority of which are backed by US dollar cash and cash equivalents. There is nothing gold-like about these stablecoins. Maybe the article refers to the rumors that Tether isn't fully backed but this isn't clear from the article. As the article also mentions, the GENIUS Act requires compliant stablecoins to be fully backed (by US dollars) so the GENIUS Act would actually be the reverse of what Nixon did in 1971 by leaving the gold standard. The problem with the gold standard was that gold is a scarce physical asset that cannot just be created. There is no scarce asset involved in stablecoins so the comparison between stablecoins and the gold standard doesn't make much sense to me.
Then there is the claim that there are $13.2 trillion 'shadow dollars' circulating outside the United States via stablecoins which makes no sense given that the biggest stablecoin (USDT) only has a market cap of $143 billion (actually $158 now) which is also mentioned in the article.
The article then goes on to compare the GENIUS Act to the Nixon shock by 'turning off the stablecoin faucet'. It then correctly mentions that major stablecoin issuers already have freeze and burn capabilities so it becomes unclear how the GENIUS Act would 'turn off the stablecoin faucet'. From all I've read and heard so far people expect the passing of the GENIUS Act to lead to increasing stablecoin liquidity.
The entire crypto financial everything is entirely built on misconceptions, that is their sole asset.
You know I agree. And it made me win far less from crypto than I would have if I weren’t a skeptic from the start. But recently something changed my mind:
Friends from an occupied territory visited on their travels and they said they can only pay with cash since their cards do not work in the let’s say „free world“ (my wording not theirs). And they said how difficult it is to live without a CC. You can’t get a hotel room in many places.
This made me reconsider my stance on using cash and I started doing it again just so it survives.
But let’s say cash goes away, in that case we _need_ an alternative that cannot be censored, blocked or otherwise cancelled.
And this could be Bitcoin (or let’s say litecoin - my favorite)!
But yes so many scams and as you say misconceptions everywhere. People don’t understand money and they think whatever promoters tell them to think.
The problem with an alternative currency like Bitcoin or litecoin, is that ultimately you still need to convert it into a national currency to make it usable.
Your friend from the occupied territory may be able to receive crypto, but they're still going to need a credit card to book a hotel room.
But that’s exactly what could and maybe should change.
I’m not really knowledgeable in this area but I think hotels want the CC in case visitors ruin the room. This could be covered by crypto based tech or services.
But my point was mostly about having money that cannot be taken away or frozen by policy.
Crypto-backed cards exist.
Can you point me to one that works reliably and isn’t too expensive?
This article was written because I suddenly remembered a story I wrote in 2018 to someone working in Singapore. As I also mentioned in the writing, it has a strong conspiratorial nature. However, I personally have such doubts. Currency should fundamentally be exchangeable, but currently Tether and Circle exchange these for dollars and purchase relatively safe short-term government bonds from the US or China, making this arrangement seem natural. However, if they were to face a situation like a bank run or become unable to pay out $1, I think the analogy of a “water faucet” wouldn’t necessarily be incorrect.
Stablecoins are quite different from banks. Under the system of fractional-reserve banking, banks by definition only have reserves for a fraction of their user's balances. Stablecoins are meant to be fully backed and the issuers claim to be fully backed. In theory it is possible that the issuers are lying but in practice this seems unlikely. Running a stablecoin business seems to be a relatively inexpensive operation compared to the amount of money you can make by investing your reserves into short term treasuries in the current interest rate environment. Even if Tether wasn't fully backed in 2018 they should have made billions in profits since off interest rates and recovered their losses.
I still don't understand your argument how the GENIUS Act would turn off the 'faucet'. Legalizing and legitimizing stablecoins would presumably lead to more stablecoin issuance instead of a bank run.
>The problem with the gold standard was that gold is a scarce physical asset that cannot just be created.
I don’t find that a problem at all, it was what made the money work and be worth something.
https://wtfhappenedin1971.com/
Article does not make sense to me. Starts off with the Triffin dilemma; its definition of the concept as "the incompatible conditions that dollars must be supplied to the world, but at the same time, they must maintain trust and control" has nothing to do with the actual Triffin dilemma. The actual dilemma does talk about the need for the reserve currency issuer to supply the world with the currency, but the actual concept juxtaposes this obligation with the inevitable trade deficits which the reserve currency issuer incurs.
The Triffin dilemma famously led to the Nixon shock in the US which ended the convertibility of the dollar to gold in the 70s, due to massive US trade deficits making it impossible to keep 1:1 backing for the USD in gold. The Nixon shock is mentioned in the article, but not how/why is happened. Neither is there an explanation of what the "second Nixon shock" is.
There is some mention of EUR/CNY digital currencies; perhaps the point is that these can challenge the USD hegemony by creating alternate globally accepted payment systems, with the second Nixon shock being the "end of USD hegemony" scenario brought up every few years?
Came here to say this. I'm quite curious to know what the author means by "digital Nixon Shock".
If hard digital assets (i.e. assets the US have limited control over like BTC, ETH, etc) gets shocked by a liquidity shortage it should on the contrary kill more of the USD dominance, which will shock more hard assets, which will kill more of the USD dominance... a feedback loop leading to the obliteration of the USD hegemon.
Nothing appoints the dollar a reserve currency, it's use makes master. It's 50% of reserve worldwide, the Euro is 20% and a range of currency follows.
It can change. Breton Woods isn't physics, its a social construct.
What interests me is long-term, which nation/currency is optimal as reserve currency?(assuming no political/military factors)
Like theoretically, assume all countries can’t collapse. Should the reserve currency be primarily the countries with the most people? (think China/India/Indonesia/Nigeria) Most natural resources? (think Australia, China or Russia) Historical power? (UK) Linguistic network? (France)
Can we even derive a normative answer?
Do non-national currencies differ to national ones?
I’m not the biggest fan of economists, but I feel like research does need to be done here…
All the things you mention could be used to decide make no sense at all because you discounted "political and military factors", which are almost all that matters in choosing a reserve currency.
It's like asking which is the best CPU when you discount speed, price and energy consumption.
It is really even more than that because of the depth of the US bond market.
Nation states need to be able to make huge transactions without any one else holding the currency feeling it. That is what makes the reserve currency the reserve currency.
That can't be done without a massively liquid bond market and no one else is even close to the US.
Then the network of military bases and military power is just another layer on top of the US bond market.
Then on top of that the top competitor has capital controls.
Personally I believe that the days of the reserve currencies are close to over, and that they will go away with the going away of the oil trade.
The present situation is one where if one wants oil, which everybody does and has nothing to trade directly with the oil countries, must export something to someone else who either exports or sells something to the oil countries, or who in turn exports or sells something to someone who exports or sells something to the oil countries. I believe that once this ends trade itself will become less important. Today it's mandatory to get oil, but once we don't need oil, the export of goods to acquire dollars to buy oil becomes optional.
Consequently I see the future as one in which people will manufacture what they themselves need or want, instead of what sells abroad.
Won’t the reserve currency simply switch to being “backed” by some other fundamental productive input? And by switch I mean the world’s most militarily powerful country will ensure that countries producing this fundamental input denominate their exports of it in their currency, if they don’t want to risk being “liberated”.
Personally, my money is on semi-conductors. It’s currently sitting at #4 in total international trade value, behind automobiles (which are increasingly reliant on semi-conductor inputs), refined oil, and crude oil.
Certainly casts a new light on contention over Taiwan.
I don't think that can be done. A whole lot of countries, even some quite small ones, so it won't be possible to directly bully them all.
Secondly, these technologies usually have stages developed by different people. Microchips are a chain: different components from Europe, Japan and the US are put together into actually usable factories in Taiwan, South Korea, the US etc. The whole chain is needed. Obviously the US recently succeded in some bullying against Taiwan, but I think it was mostly about demand, threats of tariffs, that kind of thing, and I think that kind of threat again matters only because exports are necessary because of the oil trade. It'll be harder to bully with tariffs when trade matters less.
I also think bullying countries capable of doing useful semiconductor work is less possible, and I also think countries like China will catch up, so that much will be commoditized.
I see thing as being like the end of the bronze age. With iron there's nothing to control, so there's no path to power, with decentralization and independence as the result.
Most countries can’t produce what they need.
And even when they can, comparative advantages are still a thing.
That being said, I do agree that with a reduction in the need for oil, the importance and use of a reserve currencies will reduce even if they don’t go away fully.
Yes, but if you're not manufacturing a bunch of stuff for export, then you can also dedicate the resources used for that to build what you actually want.
> What interests me is long-term, which nation/currency is optimal as reserve currency?
Perhaps none, as Keynes suggested at the actual Bretton Woods conference:
* https://en.wikipedia.org/wiki/Bancor
Interesting question, here are my few cents.
Exports are more "expensive" for countries with reserve currency status. This is a problem for countries that export many primary and "low-tech" secondary sector products. Countries that export many "high-tech" secondary sector products can usually still thrive.
This leaves us with the usual suspects: US, China, Germany (-> EU) and Japan.
Given that minting the reserve currency grants a nation economic privileges (in terms of being able to lend at a lower interest rate and having foreigners want to sell you things so as to get your currency), perhaps one could argue for a populous developing economy like India.
That would be putting the cart before the horse.
Foreigners sell you things in exchange for your currency, because they want to hold the currency. Once a currency is usable for payment in taxes, it can be analysed like any other commodity.
There are no 'reserve currencies'. Anybody holding a financial asset in a denomination outside its home physical zone area is a 'reserve'. They are operationally no different from hoarding diamonds or gold bars.
There’s one crucial difference - countries can’t print new diamonds or gold bars at will. Whenever the US prints more dollars, it transfers value from hoarders of US dollars to themselves - they’re levying a stealth tax via global oil price inflation. Other countries do not have this ability - if they print more of their own currency it just leads to domestic inflation.
The US can effectively tax the world as long as they use their military power to ensure oil producing countries denominate their oil exports in US dollars.
The reserve currency system is a stealth tribute system.
"Just" a social construct are underselling it by quite a lot. There are, let's call them "commonly held beliefs", what happens when a country decides selling oil in anything other than the USD.
That may not be the complete story, and will likely not hold up forever, but the complexity should not be understated.
As the article mentions obliquely, Nixon suspended Bretton Woods in 01971.
> Nothing appoints the dollar a reserve currency
I mean the global banking system does, along with lots of treaties that make things conditional on using the dollar.
none of them insurmountable, as we'll soon see when the US experiment gets frustrated by the Fed.
> Nothing appoints the dollar a reserve currency, it's use makes master.
Hundreds of US military bases around the world makes sure that no "stupid" leader of some nation makes a decision to switch from US dollar for international trade.
Those who dared to attempt to give up USD for trade, died horrible death like Muammar Gaddafi. It's a direct message to the remaining leaders: "Don't even think about it"
I see you’re being downvoted but I think you’re right.
The US reserve currency system allows the US to tax the world, whenever they print more dollars, via oil price inflation. Anyone without sufficient military power who tries to stop denominating their oil exports in US dollars ends up with freedom and democracy being brought to their country. Saddam Hussein switched to denominating Iraqi oil exports in Euros. Gaddafi tried to establish a pan-African gold-back dinar to denominate African oil exports in. And look how it turned out for them.
It’s a stealth tribute system. If you stop paying your tribute, the empire responds accordingly.
What I’m genuinely curious about is the recent trend of numerous countries announcing plans to create their own stablecoins. From news reports alone, I’ve seen China, Japan, South Korea, Saudi Arabia, and the United Kingdom, among others, pursuing this path. If each country develops its own stablecoin, what would be the practical significance? I understand that dissatisfaction with the existing SWIFT system is driving this rush—everyone wants their own alternative. However, this raises a fundamental question: what will ultimately serve as the global standard? The current trajectory suggests we’re heading toward a fragmented landscape where multiple sovereign digital currencies compete for dominance. While each nation naturally aspires to establish their currency as the international standard, this creates an inherent contradiction. Without coordination or convergence toward a unified system, we risk replacing one centralized system (SWIFT) with multiple competing systems, potentially creating more complexity rather than the streamlined efficiency these initiatives presumably seek to achieve. The real question becomes: will market forces, political influence, or technological superiority determine which digital currency ecosystem prevails, or will we end up with a permanently fractured global payment infrastructure?
Stablecoins are just tokenized versions of exisiting currencies. Instead of settling through the current financial system which takes days for a global transaction you settle on a blockchain within seconds or minutes. These stablecoins will probably be issued on existing global blockchains like Ethereum so they might all be interoperable within a single system just like SWIFT currently supports multiple currencies.
There may be fortunes to be made understanding mechanics here, but to the more general audience a strategic awareness of the unfolding, decentralized financial landscape and relatively early intervention on the part of the US should be heralded with great relief to help stave off the dystopian network state so beloved by Balaji et al
If the Network State is something entirely voluntary, what's dystopian about it?
I think that, in general, we need more innovation in governance.
I think the concern is that stablecoins are actually minting dollars, because they don’t appear to have $1 for $1 reserves of their stablecoin.
If you look at the Tether controversy where they were investigated by the government, the reason why they were able to sell was that they were no longer operating in the USA not that they had the proven reserves to back the currency.
Why would you call it a gold standard. It's just extending the existing dollar standard.
IMVHO: cryptos rise because fiat money are considered less and less a trustable asset. People do not understand that behind stablecoin there is thin air, not differently than fiat money, but they trust more such thin air than the ones from official central banks.
The article does not make sense i.e. in a way a econ or fed watcher off the street could agree with or reject.
But it has enough planks in the marketing of stable coins by presenting it as close to power, growing in power, and because of that is in the throws of pains as it semi directly plus semi indirectly becomes bigger than visa + Mastercard and as it area-51-x-files its way into taking over the world as the alter ego to the usd reserve currency.
If it took place in 1785s and was in French it's the kind of close to power intrigue that yields the diamond necklace affair. Frankly, the French are better at telling stories.
This is a political marketing piece whether or not the op meant it or not.
So this article is a whole load of misconceptions all the way down.
It whitters on about the dollar supply being inflationary, then talks about gold standards.
THe whole point of abandoning the gold standard is to stop deflationary shocks.
But.
THe very act of creating stable coins is inflationary, as it increases the dollar supply[1]. The only difference is that (unless the "genius" act changes that) when a convertible coin crashes, there's no bailout mechanism.
[1] When someone buys a stable coin, they give the "banker" a $1 in exchange for a thing that is "worth" a dollar. The "banker" can, if they are careful, then re-spend that dollar. The token can be exchanged for goods/services worth $1. thus the money can be spent twice.
Of course this is also how investment banks work.
TLDR stable coins are not gold standard, and never were.
And inflationary money is not a bad thing. If the economy grows, the money supply can grow without it being devalued. For instance the Chinese money supply has grown enormously since the 90s, but the currency is still quite stable.
indeed! deflation and debt is a nasty nasty thing that causes a vicious feedback loop.
Also, as you point out a fixed money supply would have caused painful distortions in the Chinese economy, as the yuan grew in value (like 0.00001yuan for a cup of tea)
Taking a page from Nixon‘s playbook and then what? Redo the 70-80 period? Is that desirable and what could possibly go wrong?
Frankly while crypto and stable-coins may pose great risks the direct interference attempts of the master of the executive in tax, crypto and treasury policies is a far greater one.
> Redo the 70-80 period? Is that desirable and what could possibly go wrong?
To salvage and strengthen US hegemony, it was a fantastic move. Of course things can go very wrong. Power moves only work as long as you’re powerful. And they’re only cost effective if your victims fold.
During the last century, we have been handling systems that are so powerful they exceed what we could understand or control. This trend seems to accelerate. At least they (US govt) are making an effort to control this proactively.
great article! That's what I need
A mainstream gold-backed stablecoin is inevitable IMO. That's way more interesting/resilient than any fiat-backed stablecoin.
PAXG already exists, which is a coin backed by gold. I plan to use it a lot after this year’s crypto cycle is over.
>Backed by London Good Delivery gold bars held in LBMA vaults in London. Paxos is a regulated trust company in New York.
USD predictably loses value over time. That means a stablecoin issuer can invest the gained fiat dollars in stable stocks, and make a reliable profit.
Gold can (and does) rapidly rise in value. An issuer of a gold stablecoin could only ensure avoiding bankruptcy by actually owning that amount of gold.
That would probably be difficult to do in practice. (And would also significantly cut into the profit potential of the issuer.)
The logical solution then is to buy a basket of stocks and use that as a more stable currency. When digitized it’s as easy to use as stablecoinn