
The
dominance
of
the
U.S.
dollar
is
hard
to
overstate
at
the
moment.
It’s
not
just
that
the
U.S.
economy
is
on
a
roll.
The
U.S.
dollar
is
the
preferred
choice
for
international
business
transactions
at
a
level
that’s
even
larger
than
the
U.S.
economic
position.
This
is
an
excerpt
from
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To
put
these
two
in
perspective,
the
U.S.
economy
represents
about
25%
of
global
output
–
a
level
that
has
been
stable
for
over
40
years
(an
astonishing
achievement
when
you
consider
the
rapid
growth
achieved
in
China,
parts
of
Asia,
and
Eastern
Europe).
When
it
comes
to
global
finance,
though,
the
dollar
is
even
more
dominant
than
the
U.S.
economy.
The
Bank
of
International
Settlements
estimates
that
the
U.S.
dollar
is
used
in
90%
of
all
international
payments
and
settlements,
with
40%
of
all
trade
invoiced
in
U.S.
dollars.
In
the
world
of
blockchain
stablecoins,
the
U.S.
dollar
represents
99%
of
all
global
stablecoin
transactions.
(USDT
and
USDC,
the
leading
players,
are
both
USD-backed
and
based
on
Ethereum.)
All
these
U.S.
dollar
transactions
put
much
of
the
world’s
financial
infrastructure
within
reach
of
U.S.
regulators.
Most
of
these
U.S.
dollars
are
electronic
and
consequently
they
all
have
ties
back
to
U.S.
banks
and,
in
turn,
eventually,
U.S.
regulators
and
the
U.S.
Federal
Reserve.
The
extra-territorial
nature
of
U.S.
law
and
the
reach
of
U.S.
institutions
and
digital
networks
makes
it
very
difficult
to
transact
in
dollars
without
encountering
U.S.
regulations.
There’s
always
cash,
but
the
largest
bill
printed
by
the
U.S.
Treasury
today
is
$100.
That
will
get
you
dinner
in
New
York,
for
one
(no
wine).
Imagine
how
many
of
them
you’ll
need
to
cover
the
cost
of
that
new
aircraft
carrier.
For
any
substantial
funding
requirements,
you
need
digital
payments.
This
dollar
dominance
gives
the
U.S.
considerable
power
in
the
global
markets,
especially
when
it
comes
to
sanctions
against
individuals
and
governments.
Banks,
wary
of
being
cut
off
from
90%
of
all
global
payments,
are
going
to
follow
U.S.
directives
whether
they
are
binding
or
not.
Other
countries
have
tried
to
supplant
the
dollar,
largely
without
success.
There
is,
however,
a
new
option
that
exists:
synthetic
dollars
on
a
blockchain.
Synthetic
dollars
are
dollar-denominated
stable
coins
that
contain
no
dollars.
Instead,
they
are
digital
tokens
that
are
pegged
to
the
U.S.
dollar
in
value
but
backed
by
a
mix
of
other
real
and
digital
assets
and
managed
by
an
algorithm
to
maintain
a
peg
with
the
U.S.
dollar.
In
the
world
of
blockchain,
they
are
known
as
algorithmic
stablecoins.
Algorithmic
stablecoins
aren’t
perfect
and
they
aren’t
risk
free.
Because
they
are
dollar-denominated
but
often
don’t
consist
of
dollars,
they
can
“lose
their
peg”
with
the
U.S.
dollar.
Sometimes
this
happens
because
of
fraud,
but
it
can
also
happen
when
the
underlying
assets
change
rapidly
in
value.
In
periods
of
high
market
turmoil
and
uncertainty,
this
happens.
Synthetic
dollars,
in
effect,
can
cost
more
than
“real”
dollars
because
you
need
to
over-capitalize
your
collateral
in
order
to
avoid
the
risk
of
losing
that
alignment
with
the
U.S.
dollar.
Despite
these
risks,
quite
a
few
blockchain-based
digital
assets
have
been
established
with
a
peg
to
the
U.S.
dollar.
The
dai,
from
MakerDAO,
is
probably
the
most
successful
of
these,
though
its
backing
today
includes
some
U.S.
dollar
assets.
There
are
others,
however,
that
are
pegged
purely
based
on
cryptocurrencies
and
other
digital
assets
that
do
not
connect
with
the
dollar.
See
also:
Crypto’s
Transition:
Bringing
Capital
Onshore
|
Opinion
Widespread
availability
of
these
assets
could
alter
the
regulatory
landscape
for
individuals,
companies,
and
governments
–
allowing
them
to
transact
in
the
world’s
standard
currency
of
choice
while
remaining
outside
the
U.S.
regulatory
structure.
This
would
be
particularly
useful
when
those
people
want
to
move
money
across
borders
or
buy
goods
that
are
globally
priced
in
U.S.
dollars,
such
as
oil.
Not
everyone
really
wants
a
synthetic
stablecoin.
Their
share
of
the
market
is
relatively
small
compared
to
stablecoins
that
are
wholly
or
partially
backed
with
U.S.-dollar-denominated
assets.
When
it
comes
to
risk
and
cost,
a
U.S.
dollar
stablecoin
that
is
backed
with
U.S.
dollars
or
U.S.
-dollar-denominated
assets
like
U.S.
Treasury
bonds̅
by
far
the
lowest
risk
option.
It’s
clear
that
many
users
prefer
this
to
other
choices
for
that
reason.
The
implications
for
U.S.
policy
are
significant.
Widespread
adoption
of
these
assets
could
diminish
the
power
of
sanctions
and
the
reach
of
U.S.
regulatory
structures.
To
head
off
that
risk,
perhaps
the
simplest
strategy
for
the
U.S.
is
to
speed
up
the
approval
and
regulatory
integration
of
existing
U.S.-dollar-backed
stablecoins.
The
U.S.
dollar
is
more
than
just
a
currency;
it’s
a
strategic
asset
for
the
United
States
and
a
global
symbol
of
our
national
resiliency
and
economic
power.
That’s
worth
protecting.