Izabella Kaminska has spent most of her career following a dollar that nobody in authority wanted to talk about.

She started as a general finance journalist — Reuters, CNBC, small English-language papers in the Caspian — before reaching Alphaville, the Financial Times’s blog, where she further developed a long-time interest in the eurodollar: the parallel dollar that circulates offshore, beyond the reach of the Fed, governed by nothing except the confidence of the people holding it.

That interest turned out to be good preparation for 2017, when she became one of the first journalists to argue that Tether was not merely a crypto curiosity but a recognisable monetary form — the latest iteration of something the world had seen before. The eurodollar had been issued by offshore banks in the 1960s on the same basic logic: promise to settle in dollars, manage your liabilities however you like, and hope nobody asks too many questions at once. The crypto crowd did not know what she was talking about. Others, like economist Perry Mehrling, did.

She left the FT to found The Blind Spot, and later The Peg, on the premise that the space between TradFi snobbism and crypto boosterism is where the important questions live — and that covering it honestly requires independence from both sides.

In this conversation, Izabella walks through the origins and logic of the eurodollar, why the LIBOR scandal was widely misunderstood, how the introduction of the euro may have quietly contributed to the subprime crisis, and why she thinks stablecoins are best understood not as a financial innovation but as a stabilisation operation — a controlled way of unwinding an asymmetry that has been building for thirty years. She also makes the case for Tether as a grey-zone instrument of US statecraft, discusses the parallel between the City of London’s offshore role in the 1960s and Tether’s position today, and explains what Poland’s gold purchases tell you about where monetary sovereignty is heading.

She’s active on X at @izakaminska, and you can find her work at both The Peg and The Blind Spot on Substack.

“My ambition is to tell the story of how the monetary system is changing.”

Nicolas: Hello, I’m Nicolas Colin, co-host of the Currency of Power podcast with my colleague Marieke Flament. Today we have a very special guest, Izabella Kaminska, founder and editor of The Peg and The Blind Spot, and formerly editor of the Financial Times blog Alphaville.

Izabella, maybe we’ll start with a quick conversation about your journey from the Financial Times to your current work, and then dig deeper into The Peg and its coverage of stablecoins, crypto, and the new monetary order. It’s a very similar topic to the one we cover at Currency of Power, and we launched at about the same time. It appears we had the same idea simultaneously — that it’s an important topic and deserves more coverage. So thank you very much for being here. Tell us a bit about your journey from mainstream financial journalism to where you are today.

Izabella: Thank you very much for having me. It’s a real pleasure. It was a real delight discovering fellow stablecoin enthusiasts coming at it from the monetary order perspective. I think it’s like Marconi and Bell — we had the same idea at the same time, because it really is a good one: that this needs discussion, not just from a purely technical and industry perspective, but from the bigger global picture of what’s going on. Or as I like to put it, breaking the stablecoin down to its fundamentals in terms of the new monetary order that is emerging.

How I got here: I’ve been a journalist all my life, and I think that’s the point of differentiation between us — I come at it from a journalistic point of view. I’ve always been a finance or business journalist, with a long career spanning Reuters, CNBC, small English-language newspapers in the Caspian, and in Poland as well, because I’m Polish. My parents are Polish. I was born in the UK, but I’m very much brought up in the cultural Polish way.

I got to the point where I was at Alphaville at the FT, and to be frank, Alphaville was one of the best jobs I’ve ever had. I was surrounded by incredibly smart people having very interesting discussions all the time. But the reason I left the FT — and I’ve been upfront about this — is that everything was getting politicized. I don’t think it’s the FT‘s fault. It just became more and more difficult to write about the intersection we’re talking about now. I feel like you have to be independent to do this objectively, because you’re always upsetting somebody otherwise. Finance journalism used to be compartmentalized in a sort of safe space. It didn’t really crash into politics that often. Obviously there was the Great Financial Crisis (GFC), and that was highly political, but even so it was a different type of politicization. Having covered Poland, and as the West became more polarized, it became more difficult to write about these things, at least at the FT in some respects.

I always say this and I do mean it: it’s still a great resource and there are people there who do great work. But journalists in mainstream frameworks are sometimes a little constrained in what they can say. So I was really looking forward to saying my own thing, which is why I left and founded The Blind Spot — the idea being a sort of off-balance-sheet Alphaville, where we could once again go wherever we wanted. It veers more into the politics side, because one of the things about being in an institution is that if you start writing about any political figure — Boris Johnson, Brexit, whoever — you collide with the political teams. There’s a clash over who has more authority to say things, and if you say something different to the others, it becomes cumbersome and politically sensitive.

I thought finance needed a dispassionate assessment from other perspectives — not necessarily endorsing those perspectives, but putting them out there. Investors cannot afford to be politicized. You have to look beyond the noise and the emotionally charged coverage. That was the idea behind The Blind Spot.

Being an entrepreneur is really, really difficult, and I made a lot of rookie mistakes. I also had no funding. As a journalist, I’m incredibly bad at asking people for money — it’s not something I’m used to. Getting funding is very difficult when you’re trying to be objective and neutral and have no paymasters. I tried to do too much too quickly, ran out of money, and had to take another job at Politico. I kept The Blind Spot going alongside that, but it proved conflicting in the end.

I’m now on my second run, having learned the lessons of that period. I’ve realized that for monetisation purposes — and there’s a reason Alphaville was always outside the paywall — monetising that sort of broad, off-the-cuff, speak-truth-to-power journalism is really difficult. You need at least a two-sided market, I think is the technical term.

So the idea with The Peg — I’m still doing The Blind Spot, but my ambition, if the monetary gods shine on me, is that The Peg will become a proper institutional industry offering, at a rate that pays for itself and for really solid, neutral journalism. That’s the key point. I personally believe this space is a little crowded with people either from the crypto side of the spectrum — which doesn’t necessarily provide neutral coverage, and I’m not dismissing them because a lot of those outlets do a great job tracking what’s going on, but they sometimes lack expertise on the TradFi side — and on the TradFi side, there’s still a degree of snobbism about the other side. Central banks are moving slowly towards understanding the nitty-gritty, but there is still a somewhat dismissive attitude towards new ideas within that community. That included me, many years ago. I’ve come more to the middle.

My ambition with The Peg is to frame everything in the very big picture — the macro story of how the monetary system is changing. If that succeeds and I can get proper journalists to support me and it pays for itself, then the creative Alphaville-style content can be put out for free as reach, with The Blind Spot remaining as a free offering. That’s the vision. Whether the gods allow me to follow through is another matter.

Marieke: I think it’s really interesting what you say, because independence in that sector is very difficult. With crypto outlets, if you have sponsorship, you feel an obligation to certain protocols. It’s hard to strike the right balance. But the gap you’re describing — bridging this dialogue in a different way — is clearly what’s missing.

Izabella: I can but try. And I do think the space needs a strong-minded, independent voice with journalistic pedigree.

“A eurodollar is a parallel dollar – a liability issued by an offshore bank that promised to settle in dollars if and when redeemed in the US.”

Nicolas: We wanted to start the conversation with eurodollars, because that’s a very old and largely overlooked segment of global finance that in many respects is a precursor to today’s stablecoins. A lot of people interested in stablecoins come from the crypto space and, like everyone in tech, don’t know much about history and aren’t particularly interested in it. What we try to do every time we write about these topics is rewind and remind people that these things aren’t completely new. Eurodollars are, again, a precursor to stablecoins. Can you tell us the history of eurodollars and why you got interested in them?

Izabella: It is a mystery even to myself. I just found the whole thing so fascinating. I got into it when I was at Alphaville, but I think if I was to really think about it, the reason I’m so drawn to eurodollars is because I’m Polish, and I saw the sharp end of the eurodollar market in the former communist system — where those dollars were circulating, not just in terms of the high-value corporate financing that the City of London was doing, but on the grubbier side: the kantors, the underground exchange. Not quite illicit, but informal.

I have a personal connection because my father was a money transmitter in those days. He was based in London and had one of the three main money transmitters doing hard currency transfers to Poland — and was somehow involved in two of them. It’s all very murky. I still can’t get a straight story from him about how it worked. I used to work weekends at his office, which doubled up as a travel agency and a parcel company, because that’s what you did — sending parcels and money transfers. I would spend my Saturdays after Polish school helping him file accounts, just organizing the cabinets without really knowing what I was doing. But now I realize what was happening: we would take the payment slips and stand outside the Allied Irish Banks and pay them all in. It was always the Allied Irish Banks, and now I realize that’s because the Irish had a different jurisdictional approach to transfers in that era — they were kind of neutral politically, which is why it enabled that. All these things started coming together.

Then separately, I was fascinated by this idea of a parallel dollar circulating through Europe. I think the second part of my fascination came when I was at Reuters as a graduate trainee, doing some time on the eurobond desk. I couldn’t understand the difference between a conventional bond and a eurobond, and I don’t think a lot of the reporters covering that market understood it either. Nobody ever properly explained it to me. That was the moment I thought, I’ve got to understand why this is a different thing. So I went off on a quest to the British Library, got hold of historic editions of Euromoney, and went through them trying to work it out.

By the time I was at the FT, eurodollars had become so second nature that nobody really questioned the difference. Even during the GFC, I think, nobody really put two and two together that the LIBOR crisis was fundamentally a eurodollar crisis. And ever since then, I’ve just been trying to get more and more insight. By 2017, when I spotted stablecoins, I was one of the first people to make that connection. I put out a story saying Tether is the new eurodollars, and at the time I don’t think anyone in the crypto space knew what I was talking about. I was at a gathering with Perry Mehrling, who I absolutely adore, and we were discussing it on the sidelines. He agreed they were eurodollars. The rest, as they say, is history.

Nicolas: What’s the short definition of a eurodollar? It’s a dollar that never goes back to the US?

Izabella: Yes — it’s a parallel dollar. These days it’s heavily regulated, so slightly different. But back in the old days, it was effectively a liability issued by an offshore bank that promised to settle in dollars if and when redeemed in the US. You could get physical cash dollars — Soviet-style kantor — or you could get a correspondent in America to pay out to another American bank. But how those banks managed their liabilities was up to them and completely unregulated. The US couldn’t really control it, and that’s where a lot of the risk came from, because these eurodollar banks were effectively issuing cheques their books sometimes couldn’t cash.

The Americans weren’t very happy about it, but they were also, unwittingly, the creators of the eurodollar market — because it was their own regulatory climate, which capped domestic interest rates, that made it so lucrative and viable to lend into the offshore market overnight. That provided the liquidity and funding that allowed the whole thing to expand.

It most famously started in the 1960s. A lot of these dollars ended up outside the system to pay for things — the famous origin myth involves Vietnam and the dollars funding various activities in the Soviet Union, and then of course the petrodollar, which ended up banked in European banks in Switzerland. That created a nice source of perpetual dollar flows that could be re-lent almost on their own parallel ledger.

Nicolas: A characteristic of the 1960s was the fixed exchange rate system. Why were counterparties outside the US using dollars instead of francs or Deutsche Marks?

Izabella: One of the main reasons was liquidity. Having to change money between the Deutsche Mark and the drachma — there simply wasn’t enough liquidity. The dollar became a bridging currency in many cases. That bridging role created a float, and that float paid a good interest rate in Europe if you funded it overnight. That’s really how it originates. It was to do with the fragmentation between all these different currencies.

By the time of the GFC, London had become the hub of eurodollar trading. It owned that market. By that point we were on floating rates, and it was in some ways the market price for dollars as opposed to the administered price through the Fed. When we saw LIBOR breaking, one of the issues was that it was a market-based price, which is very hard for central banks to influence. Post-GFC, a lot of the regulatory action has been focused on bringing that market rate under control of the Fed — done by dropping LIBOR and pushing everything onto a collateralized rate, which poses its own problems, but that’s a different conversation.

Nicolas: Can you explain what LIBOR is and what happened with it?

Izabella: LIBOR is the London Interbank Offered Rate. What’s really interesting is that crypto markets have started to evolve their own equivalent. The way I like to describe it is that it’s the rate you’re prepared to pay for dollars in order to avoid going to the central bank. Because it’s a hypothetical, it was notoriously difficult to index. It was almost theoretical — like an insurance rate. If I were to have to borrow from counterparts to avoid going to the central bank, what would that rate be? That posed its own issues, which obviously led to the LIBOR scandals, although post-GFC I think the story we heard about LIBOR was subject to some hysteria and a real quest to find a scapegoat.

Having met Tom Hayes, one of the bankers arrested for manipulating LIBOR — I interviewed him a couple of years ago, and he’s since been acquitted — I think a lot of the judicial cases failed to understand how this market really worked. Everyday people just wanted to see a banker go to jail. There was a very big difference between the manipulation of LIBOR for commercial interest and what was later argued — that the Bank of England itself was guiding LIBOR down and telling banks to give inorganic rates. So who was really manipulating whom is the question. I don’t think it was as clear-cut as it was portrayed at the time, and a lot of traders who probably didn’t deserve to go to prison did go to prison.

But LIBOR was, in a way, the market organically creating a price of money outside the domain of the central bank’s administered rate. Which is why when the Bank of England wanted to guide it lower, it was forced to literally phone up the CEOs and say it would really appreciate it if they did — because they had no direct control beyond whatever diplomatic channels they could deploy.

Nicolas: So it’s another way in which eurodollars are precursors to stablecoins — there’s that same defiance towards central banks.

Izabella: When there’s a liquidity issue, the idea is that there is a price of money amongst counterparties. Say hypothetically a stablecoin is short of the liquidity to pay out for redemptions — it’s the equivalent of going to fellow stablecoin providers who might have excess and asking them to lend overnight. The counterparties then determine whether it’s a good loan. In the GFC, what happened is that everyone knew there was a de facto shortfall in the whole ecosystem. Like a game of musical chairs, one chair was missing and the banks all knew it. So nobody was prepared to lend to anyone because you might be caught without the chair. That’s why you had to have central bank intervention.

Nicolas: Did the introduction of the euro have an impact on eurodollars?

Izabella: It’s an interesting question. I’m confident I read a BIS paper on this many years ago by Patrick McGuire, building on work by Robert McCauley. The general premise, as I recall, was that the introduction of the euro was one of the catalysts for subprime, because it created a need for that float to go somewhere else. Suddenly you had all this liquidity looking for higher rates, which had been used to collecting a nice return from funding FX flows in Europe, and suddenly it needed to go somewhere else. That cheap pool of liquidity helped fund looser borrowing standards elsewhere. I don’t want to misquote it or inaccurately attribute it — I read this ten years ago — but that was the premise.

Nicolas: That’s interesting. It implies that if dollar-denominated stablecoins grow in volume, and then someone manages to launch a euro stablecoin that grows as well, there’ll be a float looking for new destinations, and that could potentially trigger the next financial crisis.

Izabella: Well, I think the difference is that at the moment stablecoins are mostly dollar-denominated, servicing either emerging markets with a lot of FX volatility, or DeFi and crypto markets generally, which are cross-border and everywhere. That makes it slightly different, because there isn’t a natural organic process by which all these nation states are going to come together and create a comparable rail system across all those different jurisdictions. It would involve a massive cross-border currency project — something like a single currency project between all these emerging markets — which I just don’t think is going to happen. It would be interesting if the euro displaced the dollar through market dynamics alone, but it would be a market-led phenomenon rather than a political one like the creation of the euro itself.

“Dollarization is a type of geopolitical statecraft. You get hooked on us, and we come and rescue you.”

Marieke: Hearing about eurodollars through the lens of what you saw in Poland makes me think of the fear of dollarization today — how the dollar perpetuates itself and becomes embedded in economies. Is there a threat of dollarization from stablecoins that is bigger than it was with the eurodollar?

Izabella: I think there is a threat of dollarization. I actually think it’s part of the Doge-style doctrine mentality, and I think it’s a type of geopolitical statecraft. It’s not unique to the US — it’s very similar to how the EU operates with the euro system, where the euro is a sort of carrot for membership and expansion. Come join, assent to our values and standards, and one day you get to be part of the euro, your government gets to benefit from common mutual borrowing costs. Bulgaria has most recently joined the euro, and that’s very much the draw — you come from a currency board regime and get to borrow at the euro system rate rather than your national rate. That’s the carrot for expanding geopolitical influence.

I think the US is doing something very similar, but not through a formal accession process. It’s just saying: if you’re in our sphere of influence, have an unreliable currency, and we’re going to unofficially encourage dollarization — then you get hooked on us and we come and rescue you. A great example is Argentina. You saw last year when the US came in to stabilize the currency using the Exchange Stabilization Fund. Scott Bessent actually made money on that trade in the end. It shows how much political influence that provides. Further down the line, it creates a political onboarding pathway for countries like Argentina to be part of greater America effectively.

There are great advantages to being in the dollar system. For countries facing the choice between that and the BRICS orbit, the US pushes a tough AML/KYC regime through the FATF with one hand, while with the other it’s quite happy to spread the dollar around. That was the case in the Soviet Union. Officially there were capital controls and no real correspondent banking. But behind the scenes, it suited American interests for black markets to be priced in dollars, because that created price discovery and exposed the degree to which the planned economies were being mismanaged. It was a great advertisement for the stability of the dollar in relative terms.

“Saudi Arabia was the central bank of oil. China replaced it with what I call the sweat dollar.”

Marieke: Maybe we can link this to Bretton Woods, the petrodollar, and what happened post-Nixon in 1971. How do you tell that story?

Izabella: Russell Napier, and I think it might actually have been Paul Volcker who coined this, describes what we moved to as a non-system. Nixon famously took the dollar off gold, largely because of the French, and everyone thought it would be the end. But the story of post-1970s dollar markets is that they went from strength to strength, partly because it really fuelled the eurodollar markets. Once the dollar was unlinked from gold, there was really no holding back, and endogenous money creation became a massive phenomenon, mostly in the offshore world.

Geopolitically, right up until the 90s, you had the Cold War and this incredible competition between two systems. Through its unshackling from gold, the dollar became effectively a borderless currency with mobility beyond any other. I think the dollar became what it was partly because in beauty-contest terms it was being circulated so heavily in the command economies, which were mismanaging their own systems. That was really the making of the dollar.

In Europe, from a corporate financing perspective, European corporates were the most intensive issuers of dollar-backed bonds. It was also the era of bearer bonds. It was a unique time where US statecraft — selling Americanism abroad, liberalisation everywhere — created a slight tension between external and domestic policy. On one hand, control the system; on the other, be quite pleased to see the dollar circulating everywhere.

That culminates around the 90s, where you get a series of successive little crises — savings and loans, and others — and then increasingly systemic-style events. The key point for the dollar is when China starts to engage, but first it’s Japan, because of Japan’s industrial policy. And then of course the petrostates. The petrodollar, the Soviet Union, Japan’s industrial policy, and then eventually the Chinese export model — those are the pillars.

Nicolas: A lot of people are rediscovering petrodollars because suddenly the whole system seems to be changing fast — partly because of conflict in the region, but also because the US is now energy independent.

Izabella: That petrodollar regime starts coming to a head in 2014, when you see the rise of shale. It’s not a coincidence that as the US becomes more independent, you see political change in Saudi Arabia — it’s necessarily having to woo and sell more to Asia and China, which changes the game quite fundamentally. This culminates in the displacement of the old regime with MBS, who comes to power realizing that the days of bottomless petrodollar funds are at least changing, if not diminishing. He’s the one who realizes Saudi Arabia has to look beyond petrodollars, and starts the Vision 2030 agenda. We’re still living in the fallout of that regime change.

Nicolas: Why does it change things? We don’t expect Saudi Arabia to stop exporting oil. What you mean is that the buyers over time tend to be less prone to paying in dollars, and therefore Saudi Arabia cannot invest in the US economy and has to reconsider its model?

Izabella: The importance of Saudi Arabia is that it used to set the price of the marginal barrel of oil. That is where its power lay — it was the central bank of oil. For as long as the marginal barrel was effectively priced in dollars, underpinned by a US-Saudi relationship with a codependency, that anchored the dollar in a very specific way and ensured a pipeline of petrodollars and liquidity coming out through that avenue, lubricating all the eurodollars in Europe.

What has happened from the 90s and noughties onwards is that the main importer of external dollars becomes China. And it does that not through exporting a raw commodity like oil, but through what I call the sweat dollar — effectively, sweatshops and very cheap labor undercutting manufacturers in the West. That’s a completely different model, and ironically it still needs to be funded by oil from Saudi Arabia.

So you end up with a different regime. As the US’s dependency on Saudi Arabia goes down, its dependency on China goes up — which is where you get to the crunch point with Trump and tariffs. The US realizes it may have shed its dependency on a controlled ally and replaced it with a dependency on imports of manufactured goods that are actually essential to maintaining national security, armed forces, and technological advantage. That was never the case with Saudi Arabia. The deal there was: we buy your oil, you pay for it in dollars, you use those dollars to buy our defense systems, and we stay on top.

The China deal is very different. China is accepting dollars but not reinvesting them by buying US arms. It’s investing them in US debt, making it incredibly expensive for America to maintain its advantage. Then reinvesting the proceeds into its own domestic military force — outside the US security umbrella — which poses risks the old Saudi relationship never did. The exorbitant privilege becomes an exorbitant burden: the US was paying a coupon to China, which got reinvested into a military force not aligned with it.

“The exorbitant privilege becomes an exorbitant burden: you end up paying a coupon to China, which gets reinvested into a military force not aligned with you.”

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Barely a week passes without a new headline about de-dollarization. A BRICS summit communiqué. A bilateral trade deal settled in yuan. A central bank quietly adding gold to its reserves. A Gulf state accepting non-dollar payments for oil. The list goes on.

But almost all the commentary misses the same thing. It treats the dollar as one object that either holds or breaks, when the dollar is in fact two very different things — with different sources of power, different costs, and very different prospects.

To see why that distinction matters, it helps to start not with currencies, but with the engine that produced dollar dominance in the first place.

The Flywheel

Ray Dalio spent years studying the rise and fall of empires — the Dutch, the British, the American — and identified a flywheel that runs through all of them. Military strength protects trade routes. Control of trade routes makes a nation’s currency the one everyone else wants to use. Reserve currency status gives that nation the privilege of borrowing cheaply from the rest of the world. Cheap borrowing funds the military. The loop closes.

Dalio also maps how the loop breaks. As the dominant power borrows more, it grows complacent. Debt rises. The cost of maintaining military protection of trade routes becomes a net drain rather than an investment. Foreign creditors begin to question the currency. Reserve status erodes. The military weakens. The empire declines.

The US sits at a particular point in that cycle. Its interest payments on government debt now exceed its defense spending — a pattern both Dalio and Niall Ferguson have argued historically coincides with hegemonic decline. The dollar has already lost around 8% of its value in the first semester of 2025, the largest half-year decline since 1973. Markets reacted to the “Liberation Day” tariff announcements of April 2025 with an unusual pattern: investors did not flee to dollar assets as they would in a normal risk-off episode. They hedged their dollar exposure instead.

None of this means the dollar is collapsing – at least, not today. But economists Hélène Rey and Ludovic Subran, writing for France’s Conseil d’analyse économique in March 2026, identify the current moment as a “Kindleberger gap”: a period in which the dominant power is no longer fully able — or no longer fully willing — to provide the global public goods that underpin monetary leadership. Open trade, safe reserve assets, external security, lender-of-last-resort functions: these are the foundations on which reserve currencies have historically rested, and they require a hegemon prepared to bear the cost of supplying them. That willingness is now openly in question.

The flywheel is still turning. The question is which parts of it are under strain — and to answer that, the distinction the de-dollarization debate keeps failing to make must be made clearly.

Two Roles, One Currency

The dollar performs two distinct functions in the global economy.

The first is the reserve currency role: the dollar as a store of value, accumulated in central bank vaults, the denomination of choice for sovereign wealth funds and international investors seeking safety. Today the dollar accounts for approximately 58% of global foreign exchange reserves, far ahead of the euro at around 20% and the renminbi at less than 2%.

The second is the trade currency role: the dollar as the medium of exchange for global commerce, used to price commodities, settle contracts, and clear cross-border payments. Approximately 60% of global trade is invoiced in dollars — dramatically out of proportion with America’s 14% share of world trade. More importantly, virtually every dollar-denominated transaction anywhere in the world, between any two parties, in any country, clears through the US financial system.

The two roles reinforce each other through a simple mechanism. If you sell commodities in dollars, you accumulate dollar surpluses. You then need somewhere safe to park them — and US Treasuries are the obvious answer. If you expect to buy oil or manufactures priced in dollars, you hold dollar reserves as a buffer against the day you need them. Trade currency status thus generates reserve currency demand almost automatically. And reserve currency demand, in turn, deepens the dollar’s dominance of trade: the more widely dollars are held, the more natural it is to invoice in them. This self-reinforcing loop is the core of the flywheel — and it is why the two roles, though distinct, have historically moved together.

Even if they’re related, the two roles are not the same, and the power they confer is different in character. Reserve currency status is about what countries hold. Trade currency status is about what every transaction passes through — and who controls the gate.

That gate is also the source of something often underappreciated: America’s sanctions power is not a foreign policy tool bolted onto the dollar system. It is intrinsic to the architecture of dollar clearing. To be excluded from dollar settlement is to be excluded from the global economy. Iran cannot sell oil internationally through normal channels. Russia’s largest banks cannot access global capital markets. Venezuela cannot conduct ordinary international commerce. These are not merely financial inconveniences. They are existential pressures, applied through a payments infrastructure that most of its users never think about.

Understanding how the US came to hold both roles, and which is now under threat, is essential to understanding what comes next.

How The Flywheel Was Built

Dollar dominance was constructed, layer by layer, across three decades of deliberate architecture — and the two roles were accumulated separately.

The reserve currency foundation was laid at Bretton Woods in 1944. With Europe devastated and the US holding the majority of the world’s gold reserves, forty-four nations agreed to anchor the global monetary system to the dollar, pegged to gold at $35 per ounce. But the system carried a structural flaw from the outset — what economist Robert Triffin identified in 1960. To supply the world with the dollar liquidity it needed to grow, the US had to run persistent balance of payments deficits. Those deficits gradually undermined confidence in the gold peg.

It was within this Bretton Woods system — and partly because of its constraints — that the eurodollar market took root. US capital controls and domestic interest rate ceilings pushed dollar-denominated business offshore, primarily to London, from the late 1950s onward. The result was a growing pool of dollars circulating entirely outside the US banking system, beyond the reach of American regulation. With the growth of eurodollars, the dollar was becoming stateless: a global currency that happened to be issued by one nation. Crucially, this offshore ecosystem flourished precisely when America’s capital account was not open — a reminder that dollar internationalization and financial liberalization are not the same thing, and did not arrive together.

In August 1971, facing a run on US gold reserves, President Nixon closed the gold window. The dollar became a pure fiat currency, backed by institutional trust rather than metal — and America’s capital account began its long opening. The eurodollar market, which had grown up in the constraints of the old system, now expanded further still as those constraints fell away.

What followed secured the trade currency role: the petrodollar deal. In 1974, the Nixon administration struck an agreement with Saudi Arabia. In exchange for American military protection, Saudi Arabia would price its oil exports in dollars and recycle surplus revenues into US Treasury bonds. The other OPEC nations followed. Because the world needed oil, it needed dollars to buy oil. The self-reinforcing loop described above — trade generating reserve demand, reserve demand reinforcing trade — now had an energy engine driving it. Every barrel of oil traded anywhere in the world created demand for dollars and recycled through the US financial system.

By the time financial deregulation accelerated through the 1980s and 1990s, the architecture was complete. The petrodollar recycling loop — oil priced in dollars, surpluses invested in US Treasuries, dollar demand self-perpetuating — was the engine of American financial hegemony for fifty years. The flywheel, in Dalio’s terms, was turning at full speed.

The Privilege and the Burden

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Sean Neville has spent thirty years asking the same question in different forms: what happens when you put a system that was built by gatekeepers onto rails that have none?

Sean started as a coder and composer, building software in the early days of the web at a time when most people were still paying monthly fees to send each other emails within a single walled garden. He watched the internet dissolve those walls for content and data, then spent the next decade questioning why money had been left behind. It is the quest to answer that question that led him and Jeremy Allaire to found Circle in September 2013, with a simple and radical premise: that the dollar, like the documents and the emails before it, should move on open rails.

The path from that premise to a working product was not straight. Circle tried consumer payments, OTC trading, crypto investing, and several versions of what would eventually become USDC before finding the form that worked. The first USDC white paper was mostly wrong. The second was mostly right. Coinbase came in as the first partner and co-founders of the CENTRE Consortium, the governance body that launched USDC in 2018 (and later closed in 2023). Regulatory clarity took seven years. The market cap did not move meaningfully until 2020. Sean describes all of this without apology — not as a series of failures but as the only honest way to climb a mountain when you cannot yet see the path.

USDC is now one of two stablecoins with genuine liquidity at scale. That fact contains, for Sean, both the vindication of the original thesis and its next unsolved problem. A world with two liquid stablecoins works. A world with ten thousand — each slightly different in value, each claiming to be a dollar — breaks the most basic property that makes money useful: that a dollar is always worth a dollar. This is the well-known singleness of money problem, and Sean thinks it is the largest single obstacle standing between where stablecoins are today and where they need to go.

His new company, Catena Labs, is built on a related inversion. Every financial institution in existence has spent years and enormous resources keeping bots out of its system. Catena is designed from first principles for a world in which bots — AI agents — are the intended customers. The compliance infrastructure, the identity layer, the policy engine: all of it is built not to exclude automated actors but to let the right ones in, safely, with cryptographic enforcement rather than human oversight at every step. Sean believes that within a foreseeable horizon, every financial transaction will be executed by AI. The question is not whether to build for that world but how to build for it without repeating the gatekeeper mistakes of the early internet.

In our conversation, Sean walks through the composing and coding parallels that have shaped how he builds, the slow series of ‘aha’ moments that led from Bitcoin to USDC, why the singleness of money matters more than most people in the stablecoin space acknowledge, and what it actually takes to build a financial institution whose customers are agents. He also explains why the hardest problems in both crypto and AI are not technical — they are about getting people who do not normally talk to each other to agree on the same approach before the window closes.

You can find Sean and the team at @psneville and @catena_labs. Follow the agent identity work on Catena Labs’s website.

“Composing music for ensembles and building software to run on machines share a great many parallels.”

Marieke: Welcome to Currency of Power, Sean. It’s a real pleasure to have you here.

Sean: It’s a pleasure. Great to see you, Marieke and Nicolas.

Marieke: Let me start with a bit of context. Nicolas and I started Currency of Power almost a year ago. What we try to do is examine the intersection of money, power, and technology. Very few people sit at the centre of all three, and Sean, you do. We are going to explore stablecoins, agentic payments, and how you think about the future of money. You have built many companies in this field and have always been good at reading the forces coming together, so it is really exciting to have you with us.

Sean: Thank you.

Marieke: For our audience: Sean is the co-founder of Circle, inventor of USDC, and today the founder of Catena Labs, where you are building what you call an AI-native financial institution. I had the pleasure of working with Sean and Jeremy at Circle about ten years ago. Sean, you are a very deep thinker and you connect dots that many people miss, so hopefully you can bring clarity to some very complex topics today.

Our conversation has three main parts. First, your career and mental models — from music and coding to building platforms and now AI-agent commerce. Second, the stablecoin revolution — what USDC revealed about money and programmable finance. Third, AI agents and agentic payments.

Let’s start with your journey. You are a musician and an excellent coder. Tell us about that.

Sean: On the music side, I would say I am much more a composer than a performer. I have always felt that composing music for ensembles and building software to run on machines share a great many parallels.

From the outside, people imagine you have an idea, you put together a plan, and then you go build it. But in music and in software it is more holistic than that. You have an idea — or an obsession you cannot set aside — but you do not always know exactly how it will be realised. So you cannot write a perfect plan and simply execute it. It is a little like building a house not from a blueprint, but by laying a bit of the foundation, then trying a bit of the roof, seeing what happens, learning things, and finding how the pieces connect. You work iteratively, and ultimately things come together to realise the core vision — though likely not in the form you first imagined.

In music, especially improvisational composition, you have to listen to everyone else playing. It is not a solo enterprise. And in all the best things I have built in software, it has been exactly the same: multiple players, internal and external.

From a career perspective, the conventional wisdom is to pick a lane, learn a domain, and stay dedicated to it. If you look into other lanes, you risk being criticised for drifting. I have always thought that is nonsense. It is far more productive to develop a sense for how builders in different domains work, and then try to connect those things. That is the only way I know how to do it, and to whatever extent I have been successful, it is the only way I could have done it.

Nicolas: Does that mean you have been active in both music and technology simultaneously, or did you make a switch at some point?

Sean: I have always done both at the same time, but I always knew I would be a software engineer — that building software products was what I would do. And the best way to build certain products is to build companies, and the best way to build generational platforms is to build several companies. So it cascades.

I never had it in my head that I would go full-time as a professional composer or performer. I scored some films, games, and commercials on the side and kept that up. But Jeremy and I founded Circle in September 2013, and as we ramped up, the music — and the other things I was doing — had to diminish because there are only so many hours in a day. I was teaching one class at Berklee College of Music at the time, and that was when things started to pull in different directions.

Nicolas: Did you train in jazz?

Sean: My mother was a professional classical musician — a flutist. My sisters and I grew up around formal music training. My biological father also played jazz and other things, so we studied everything. I was always drawn to ensemble music, which is where jazz sits. Berklee is known as a jazz school, though it covers every genre.

The trick with improvisation is to lean on a solid understanding of theory without letting it cloud your ear. You have to play in the moment, find the right pocket, listen to the other players, and let what you hear inform your playing — without it becoming an academic exercise, which is what it sounds like when it does not work.

Nicolas: You also need a high level of technical mastery to translate what is in your head into actual notes.

Sean: That is right. Growing up with a parent who was a professional performer, I saw from a very early age the hours required to reach that level. That is one of the reasons I knew I was not going to spend my hours on performance. My mother taught at collegiate level during the school year, practised her own repertoire, and did orchestral tours in the summers — fourteen to sixteen hours a day. The truism she lived by was something like: if I miss one day of practice, no one in the audience will hear it, but I will. If I miss two days, everyone in the band will hear it. If I miss three days, the audience will start to hear it. It is the consistency that matters to stay at that level.

There are so many musicians, but also people who study philosophy — Jeremy, my co-founder at Circle, studied political science. A lot of liberal arts people were building the early web. I think there is a resurgence of interest in those studies now in the age of AI. Those who orchestrate agentic workflows most effectively often have some skill, if not formal training, in literature, philosophy, or languages.

Marieke: Walk us through your journey into coding. You founded Code Studio in 1998 and then moved through Macromedia and Adobe to Circle. What was that path?

Sean: For me, there was always something I wanted to build, and so I would learn enough to build it, and hopefully find people along the way who could help teach me how. I coded since I was a kid — back then you could write out a program, send the raw source code, and have it published so that other people could copy it into their computers. I did that as a child.

I became more obsessive about it in my early teens. I was obsessive about music too, but I always had a sense I was going to build software because those were the things I was most interested in. And when computers began to be networked — not just software on my machine that I could give you the source code to, but all of our machines connected through shared protocols — I was solidly on that trajectory. None of us foresaw everything that would be possible on a worldwide web, but we had a sense of the enormous unlock that would come from networking machines on open standards that no single company owned.

It was not a matter of deciding to become a professional software engineer and majoring in computer science. It was more that I had things I wanted to build, I would go build them, and that would lead to the next thing. I was fortunate to meet very like-minded people along the way. Some of it was pushing the boulder uphill, but a lot of it was also a snowball rolling downhill, gathering momentum as we built.

Nicolas: You mentioned open protocols — foundations that are not owned by anyone, things that anyone can build upon. Is that a common thread from those early days to crypto?

Sean: It is. Before I started my first company, a lot of people used online services like America Online, CompuServe, or Prodigy. For most people it seemed like there was more content inside those walled gardens than on the open internet. The web was just emerging, and mostly it was a way to retrieve documents if you were in academia. A typical user paid a monthly fee for the privilege of sending email to someone else on the same service — you could not send it externally. Content was caged inside those platforms.

The premise of the internet was breaking through all of those walls. No longer controlled by gatekeepers, whether for content, for expressing your opinion, or for commerce. Open rails as a fundamental public good for the world.

And then when it came to crypto, the idea was: we played a small part in developing public goods for the exchange of content and data. Can we do the same thing for money? Because money was still very much locked behind gates. Gatekeeper business models are typically: I will give you access to the system, but I will take a little of your data — or your money — for the privilege of connecting. We looked at cryptography as a way to break that down in a very similar way.

“Bitcoin was a new thing on the whole, but its pieces existed before.”

Marieke: What was your moment of conviction for crypto? In 2013, it was portrayed in the press as something for fraudsters and drug dealers. What did the ‘aha’ moment look like for you?

Sean: There is still criticism of crypto, and the speculative side still ends badly for people. But there is also a lot of good that has been unlocked along the way.

For me there was not one single ‘aha’ moment — there was a series of them. Early on, it was conviction not necessarily around Bitcoin itself, but around that early combination of technologies. Bitcoin was a new thing on the whole, but its pieces existed before. It was a very clever connection of existing technologies to give people control of money flows. Seeing that it was possible to trust financial transactions without trusting your counterparty — trusting the software rather than the human beings or businesses built on top of it — that was an early one.

We founded Circle in 2013, but I did not write the USDC white paper until 2017, so it was four years. You could ask why we did not simply put dollars and euros and pesos on the internet from the start. The truth is it was a series of aha moments and experiments. Our overall vision has not changed — I think of it as a mountain in the distance that we are going to climb. We are not going to choose a different mountain. But the path to get there will almost certainly change as we learn things. You may need to backtrack and find another way, but the mountain is the same: to democratise access to global finance and create new ways for everyone around the world to engage with the economy on equal footing.

Marieke: From where I sat at Circle, it felt like there was always this idea that money would be completely transformed — but that finding the path required constant adjustment. What were some of the testing moments?

Sean: There were many. Even with USDC, the first version was not right. We had envisioned something almost like a programmatic central bank, with a unit called a cent, overseen by what we called the Centre consortium. It was a different mechanism for bringing fiat currencies on-chain, but it was not the right approach at the time. We revised it substantially, and it was really the second version that we took to market with Coinbase as the first major partner.

And I certainly did not do it unilaterally — there was a whole team of people involved.

More broadly, when you have a large vision for what you hope will be a generational platform, there will inevitably be multiple products that try to get you there. We did not follow the conventional startup wisdom of doing one thing, focusing on one ideal customer profile, finding their pain point, building a painkiller. We started with several possibilities: a consumer product called Circle Pay, a product called Circle Invest, an internal OTC trading desk, a treasury and trading function. Some experiments flat-out did not work — the first version of USDC was simply the wrong approach. Others worked for a period and then stalled, which is actually the hardest situation, because you are always asking whether to give it more time, invest more, or redirect resources. And then there were things we had firm conviction in that were not immediately successful.

USDC was one of those. When we launched, interest rates were low — the business model depended on interest rates — and we also knew that encoding a dollar token on internet rails would require legislation. I thought that might take ten years. It took seven: we got the GENIUS Act passed. Because of all of this, the market cap for USDC did not really begin to grow until mid-to-late 2020.

The hardest part of all of it, though — the most testing moments — is people. The most valuable technical problems to solve are always, at their core, people problems. Partners, customers, and the people inside the company who joined at the early stages and committed a portion of their professional lives to the vision. Managing course corrections with those people is a real challenge.

“A stablecoin is, at its core, just a dollar made to work on internet rails.”

Marieke: Maybe we can move to stablecoins specifically. Stablecoin 101: what is a stablecoin, why is it called that, and what led Circle to create USDC?

Sean: I will preface this by saying I have never loved the word stablecoin — I will explain why in a moment.

The concept is fairly simple. The idea is to take something like a US dollar — it can be other currencies, but when people refer to stablecoins they are mostly talking about dollars — and put it on internet rails so that it can be transferred not through credit card systems, wires, or other traditional rails that flow through banks, but directly across the internet. The advantage is that you can send money across borders almost instantly for almost no cost. The internet does not distinguish between a trillion dollars and one dollar in terms of data size — it is just a very slight difference in the data. It is not based on the value of the number.

The idea is simply to take money, make it accessible on open public-standard rails, and let businesses and individuals transfer value over those rails without intermediaries taking a cut along the way. If I send you a thousand dollars, you receive a thousand dollars. That sounds obvious, but in reality, depending on where you send it, a thousand dollars might arrive as eight hundred. Or nine hundred and ninety-seven. The internet largely wants data to be free, with other business models supporting that freedom. A stablecoin is, at its core, just a dollar made to work on internet rails.

More technically: the mechanism is that a dollar recognised by the government is deposited somewhere — in a bank account or equivalent. If you want to convert it into a dollar that works on the internet, that dollar goes into what are called reserves — a safe backing — and in return you receive a token, almost like a coat-check card. You can pass that token to someone else, but it is backed by the real thing. And the backing matters enormously. If the custodians are untrustworthy or the reserves are invested in risky assets, then you may think you hold a dollar but it is no longer backed by anything that can confirm that.

So fundamentally, a stablecoin is a fiat currency held in a trusted, risk-managed reserve, represented as a token that can circulate and later be redeemed for the underlying currency.

The word stablecoin has nothing to do with any of that. It is really a reference to crypto. The problem with crypto — the benefit if you are an investor, but the problem if you are making payments — is volatility. Bitcoin, Ethereum, Solana: all go up and down. If you want to buy a coffee, it is difficult to use something whose value could fluctuate by orders of magnitude in hours or days. Stablecoin simply means: compared to crypto, the value does not fluctuate. A dollar is a dollar is a dollar.

Outside the bounds of crypto, when you are just thinking about money, it is a slightly odd term.

Nicolas: Going back to open protocols: there are protocols like SMTP for email and HTTP for the web. No such thing existed for money. In Europe, the SEPA system lets people send money from one country to another seamlessly and for free. It is very difficult for stablecoin advocates in Europe to make the case that we need them. Can you explain that difference?

Sean: Good point on standards. HTTP for the web, SMS — no one owns those protocols. Google does not own HTTP. Microsoft does not own SMS. These are open protocols maintained by standards organisations in a way that has been beneficial to everyone, so that you can put your business online and anyone can interact with it without needing a special way in. That is a lot of the idea behind blockchains for moving money.

Now, for stablecoins specifically: the clearest way to help people understand the value is usually through two use cases.

The first is sending money across borders. The internet has no borders. If I send you an email, it does not stop at a border and wait a few days. But that is essentially how money works across borders. Treasury managers often do not know where their money is at a given point in time because it is in transit between accounts held overseas by custodians in different banks. The power of sending money over blockchains is full transparency at all times — an open, auditable ledger. And fees, while they vary by chain, are very small relative to the traditional system.

The benefit varies depending on which borders you are talking about. Sending sterling from London to a family in the Philippines — the problem is obvious. Sending money from Scotland to England — much less of a problem. But the idea is you should not have to think about borders at all.

The second use case is on the recipient side. Many people simply want to hold value they can trust and use in their own economies, and they cannot. It could be a lack of liquidity, inflation, or local currency problems. One of the reasons stablecoins largely mean dollar stablecoins rather than other currencies is that many people abroad want to hold dollars. They are not asking for stablecoins — they are asking for dollars, but they cannot open an account at a US bank. The best way for them to access dollars, whether as individuals or businesses, is through stablecoins.

Marieke: How do you think things will evolve? There is fragmentation: central bank digital currencies, tokenized deposits, stablecoins. And today, ninety-nine per cent of stablecoins are in dollars. What is the place for other currencies and other forms of tokenized money?

Sean: There is a third use case worth mentioning that is more interesting to people with an economist’s bent, and it was really foundational to Circle: the concept of a narrow bank, and what is sometimes called the Chicago Plan.

Narrow banking is a boringly simple concept. If I put money into a bank and come back ninety days later, my money is still there. That is not really how banking works today. Banks lend out a multiple of what you have deposited — fractional reserve lending — which is how most money is generated. Narrow banking asks: what if we had a bank that could not do that, or simply did not? It separates the money-creation function from the payment function.

Further experiments have explored: if deposits can only be invested in the most conservative, liquid instruments — short-term US treasuries, for instance — and there is some return on that, could depositors actually access some of it? The bank takes a margin because it needs to make money, but could depositors see some of the yield?

Such a narrow bank, accepting deposits directly and connecting to the Fed and to treasuries, is not legal in the United States. But stablecoins are effectively that in spirit. The reserves, now encoded in legislation like the GENIUS Act, must be very conservative — US T-bills, cash, highly liquid instruments with built-in consumer protections. No fractional reserve lending. You put your money in; it is still there; and to the extent it is invested, it goes into the most liquid and conservative instruments available.

When it comes to other currencies: the desire is not really for USDC or other dollar stablecoins. It is for dollars. And the real hurdle for any stablecoin — dollar or otherwise — is achieving meaningful liquidity. That depends on how desirable and trustworthy the underlying reserves are, and what incentives you can use to encourage people to hold and use the coin.

Prior to last year, I would say the biggest hurdle for stablecoin adoption outside crypto capital markets was simply regulatory uncertainty. It was not clear whether a stablecoin was an investment, a money market fund, or a payment instrument. Now it is much clearer. The next hurdle for anyone creating a stablecoin is liquidity. Technically, creating a stablecoin is easy. But why would anyone accept mine if there is no meaningful liquidity behind it?

The fundamental business model is still tied to interest income on the reserves. If interest rates are unhealthy, other alternatives begin to emerge — tokenized deposits and so on. That is a key consideration for the entire space.

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There is a plan. No ministry has published it, no party congress has voted on it, and you will not find it written down anywhere. But if you watch where the cables go, where the factories are, and where the money flows, the shape of it becomes clear. China is building the infrastructure of a new world order, and the war in Iran just gave it a ten-year head start.

To understand why, you need to follow the money. Not the oil—the money.

The loop that ran the world

For fifty years, a single financial mechanism underwrote American power. It was elegant, self-reinforcing, and almost invisible to most of the people it affected.

Here’s how it worked. Gulf states sold their oil exclusively in dollars. The world needed that oil, so the world needed dollars. The dollars accumulated in sovereign wealth funds in Riyadh, Abu Dhabi, and Doha, and in turn those funds recycled the surplus into US Treasuries and American financial markets. With the system running at full capacity, Washington could borrow cheaply, run large deficits, and project military force across the globe—all of it quietly underwritten by the daily fact of oil changing hands in a single currency.

This was known as the petrodollar recycling system, and its origins could be found in an obscure deal, struck in 1974 between the Nixon administration and Saudi Arabia at a moment when America needed a new anchor for the dollar after deliberately abandoning the gold standard in 1971. Over time, petrodollar recycling ended up working better than almost anyone expected. By the time the shale revolution made America largely energy-independent, it had been running so long that most people had stopped seeing it as a system at all. It felt like gravity, an immutable law of the economic universe.

The question nobody asked was what happens when the planet underneath it shifts.

The system Washington is building to replace petrodollar recycling

The petrodollar was always going to fade, for various reasons that all became obvious over the past decade or so: US shale has reduced America’s own dependence on Gulf oil; the energy transition is slowly eroding the long-run value of hydrocarbon reserves; finally, world increasingly organised around data, AI, and compute infrastructure is going to need a different kind of scarce, dollar-denominated commodity to anchor global demand for American currency.

Washington’s answer to the predicted exhaustion of petrodollar recycling is compute: scarce, capital-intensive, dollar-denominated infrastructure whose settlement rails would do what oil revenues once did—an argument we developed in Barrels to Bytes last November, which was later re-quoted and further discussed by many—including John Naughton from The Observer in “Why Stablecoins “crypto for adults” have suddenly become a big deals.”

This is the through-line of American economic power that is easy to miss when you are focused on oil. The US did not just win the postwar era with military strength; it also won it by being the leader in the age of semiconductors, computing and networks and asserting control over the operating systems, the platforms, the protocols that became the invisible infrastructure of the global economy. From the 1990s onward, every serious economy ran on American software, and American software, by design, ultimately settled in dollars.

America’s bet for replacing petrodollar recycling follows the same logic, extended one layer further. AI is software. Crypto is software. Stablecoins are, at their core, the softwarisation of the dollar itself—programmable money that can move anywhere, settle instantly, and be embedded into any digital transaction on earth. A stablecoin issuer takes deposits, issues digital tokens pegged to the dollar, and reinvests the deposits in US Treasuries. The issuer earns the yield, the Treasury gets a buyer, the dollar gets a new payment rail, and every stablecoin in circulation becomes a small permanent bid for American government debt, thus cementing US hegemony for decades to come as we wrote in June last year. Stablecoins—or, as we call them, “cryptodollars”—are the new petrodollar.

The deeper question is what runs on top of those rails:

• As AI agents proliferate—autonomous software systems that negotiate, transact, and settle on behalf of their users—the volume of machine-to-machine transactions will dwarf anything humans conduct today. Those agents need a settlement layer, and dollar-backed stablecoins are the natural candidate: programmable, instant, globally accessible, denominated in the currency that already anchors international trade.

• Alongside the agent economy, the tokenisation of real-world assets is creating a second wave of structural demand—real estate, bonds, commodities, private credit, trillions of dollars of assets moving on-chain, each transaction requiring a settlement currency. If both run on dollar stablecoins collateralised by US Treasuries, the network effects compound in ways the petrodollar system could never have achieved. Oil was bought and sold by humans, in bulk, a finite number of times a day. Software agents transact continuously, at machine speed, at planetary scale.

The transition to this new world requires capital—vast amounts of it. The data centre buildout needed to anchor this new system runs into trillions of dollars globally, which is why, for the past three years, every American hyperscaler has been travelling to Riyadh, Abu Dhabi, and Doha with term sheets. Gulf sovereign wealth funds were to be the bridge: petrodollars recycled not into Treasury bonds directly, but into the compute infrastructure that would generate the next generation of dollar demand. Trump himself was pressing Gulf leaders for commitments running into hundreds of billions—American-technology-powered data centres built across the Gulf itself, turning old petrodollars into new cryptodollars. The system would renew itself. Stargate is a good example of the level of ambition that was laid ahead.

Following a grandiose visit, the first concrete proof of concept arrived in May 2025. MGX, an Abu Dhabi state-backed investment firm, used USD1—the dollar-pegged stablecoin launched by Trump’s own World Liberty Financial—to settle a $2 billion investment in Binance, the world’s largest crypto exchange. USD1 is backed one-to-one by US Treasuries. This particular transaction was, in miniature, exactly the loop the cryptodollar thesis describes: Gulf sovereign capital flowing through a dollar-denominated instrument collateralised by American government debt—the old petrodollar recycling mechanism, updated for the digital age. That the stablecoin happened to be the president’s own family venture added a layer of political controversy, but the monetary logic underneath it was precisely what Washington has been trying to build in the recent period.

Then the bombs fell.

Three things the war destroyed in a single night

The strike on Iran did not merely disrupt oil markets. It severed three structural elements of this plan at the same moment.

• First, the Strait of Hormuz closed. Gulf producers could not safely ship their oil or collect their dollar receipts, and the automatic recycling of petrodollar liquidity into US financial markets—the mechanism that has quietly funded American deficits for five decades—stopped. The bridge capital for the cryptodollar transition, dependent on that same surplus, evaporated precisely when it was most needed.

• Then, on the first Sunday of the war, Iranian drones struck three AWS facilities in the UAE and Bahrain, causing structural damage and extended outages. The message to every investment committee in the world was immediate and legible: a data centre in a war zone is a liability. The Gulf buildout—the physical foundation of the cryptodollar plan—became uninvestable overnight. Projects in Saudi Arabia, Qatar, and the UAE that had taken years to structure are now stranded, and the insurance market alone will ensure the capital does not come back quickly.

• The third blow was slower but may prove the most durable. The war frightened the world about hydrocarbons as a foundation for anything. When supertanker cover gets pulled and a chokepoint carrying a fifth of the world’s traded oil comes under active threat, the case for domestic energy independence stops being a climate argument and becomes a simple matter of economic survival. The race to electrification lurched forward a decade in the space of a week. As Azeem Azhar and Hannah Petrovic write in their recent essay “The case for radical solar optimism”, the solar supercycle that makes this possible has been turning for fifty years and shows no sign of slowing.

We have seen this before. The 1973 oil shock hit Japan with particular violence—an island nation with no hydrocarbons, entirely dependent on Gulf imports. Tokyo’s response was to build its way out of the dependency with the Energy Efficiency Act. Japanese manufacturers spent the next decade engineering the world’s most fuel-efficient cars, the government poured investment into alternatives, and adversity became an industrial strategy. Japan’s auto industry became one of the most formidable export machines of the twentieth century. Every government watching the current crisis is running the same calculation now. The question is who builds the infrastructure that replaces fossil fuels.

China had not been waiting for a crisis or an opportunity. It has been building a parallel infrastructure for decades.

The Electrostate

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Kurt Hemecker has spent his career trying to answer one question: How do you scale trust in a digital age?

He started out writing encryption firmware for US avionics, then built international payment circuits on Wall Street for British Telecom, then helped expand mobile payments to forty countries at a startup that was absorbed into PayPal. Each step taught him the same lesson: moving money is not a technology problem. It is a problem of trust distribution and political consent.

That lesson became vivid at Libra—the Facebook-backed project that attempted to redesign money at internet scale, later rebranded as Diem. Kurt was there. He watched the association—Shopify, Spotify, Uber, A16Z, social impact organisations—spend years educating regulators, negotiating with governments, and building what he describes as the most intellectually ambitious monetary project he had ever seen. He also watched it fail, not for technical reasons, but because money is sovereign, and sovereigns pushed back. While Libra/Diem was busy asking permission, other players such as Tether and Circle were simply doing it.

After Diem wound down, Kurt turned to the verification problem. If finance is going to be programmable, how do you make identity and compliance programmable too—without turning every transaction into a data breach waiting to happen? That question took him to the MENA Foundation, where he worked on zero-knowledge proofs: the branch of cryptography that lets you prove something is true without revealing the underlying information.

He is now CEO of Gold Token SA, an MKS PAMP company, where he is relaunching DGLD—a token backed one-for-one by physical gold stored in a Swiss vault in Ticino. MKS PAMP refines four nines of purity, distributes to central banks and Costco alike, and runs trading desks in Geneva, New York, and Hong Kong. Kurt’s argument is straightforward: this is not a blockchain company trying to get credibility in gold; it is a gold company putting its asset on modern rails.

In this conversation, Kurt walks through what actually killed Libra, why zero-knowledge proofs have not yet reached the mainstream and what it will take, and why tokenised gold is not the same thing as a gold ETF. He also makes the case for gold itself—not as a speculative bet, but as one of the four pillars that families with multi-generational wealth have quietly relied on for centuries. None of it is investment advice. All of it is worth hearing.

You can follow Kurt on X at @khem and explore DGLD at dgld.com.

Marieke: Kurt, it’s great to have you with us. You and I have known each other for some time—I had the opportunity to sit on your board at Mina Foundation, and now we have the pleasure of working together at MKS PAMP on the Digital Gold Token, where you’re CEO and I’m one of your advisors. Nicolas and I co-author Currency of Power, a newsletter we recently launched that looks at geopolitics and new forms of money—of which tokenizing gold is one. We couldn’t think of a better guest to discuss gold, tokenized assets, privacy, and everything happening in this new financial world.

We’ll cover three areas today. First, your career: from PayPal to Libra/Diem, then Mina Foundation, and now MKS PAMP. Second, privacy and anonymity—critical concepts as finance becomes more digital, and an area where you have real expertise. Third, tokenizing gold, which is highly topical right now. Welcome, Kurt.

Kurt: Thank you, Marieke, and Nicolas as well. I’m delighted to be here, and genuinely fortunate to have Marieke among my advisors on the gold project.

“Financial infrastructure is not just code. It’s governance, legitimacy, and political consent.”

Marieke: Let’s start with your path into crypto. You’ve been in the space long enough to have seen Libra, Diem, Mina—a zero-knowledge proof protocol we’ll explain—and now tokeniszd gold. What brought you in, and how has the journey unfolded?

Kurt: I’ll go into a bit more detail than I usually do on a panel, since we have the time. Going way back, I studied computer science and started out developing encryption firmware for US avionics, then spent time on Wall Street working for British Telecom on international circuits between financial institutions. So I’m a bit of a dinosaur—I’ve been through what Chris Dixon calls Web1, Web2, and Web3.

My move into crypto wasn’t ideological at first. It was really about scale. I’d spent a large part of my career working on digital payments. At PayPal, I was working for a mobile startup called Zong, where we had expanded mobile payments into more than forty countries, and that eventually became part of the PayPal portfolio. That experience taught me something quickly: moving money is not primarily a technology problem. It’s a problem of trust distribution and regulatory coordination.

Then at Libra, which became Diem, I saw for the first time an attempt to redesign money at internet scale. It wasn’t just another wallet or payment app—it was about creating a programmable monetary layer embedded into global platforms. The opportunity to work on that was intellectually irresistible. Love them or hate them, the Facebook team brought remarkable thought leadership, and the broader association included Shopify, Spotify, Uber, Lyft, investment firms like a16z and USV, and social impact organisations. These were people who know how to build services that people actually want to use.

But in the end—and everyone knows the story now—it became a masterclass in how sensitive money is as a social technology. That clarified something for me: financial infrastructure is not just code. It’s governance, legitimacy, and political consent.

That realisation led me toward a deeper question: if finance is going to be programmable, how do we make verification programmable too? That’s the famous Web3 ethos—don’t trust, verify. And that’s what took me to Mina and zero-knowledge proofs: the idea that you could prove compliance or identity without overexposing personal data.

Now at Gold Token SA, which is an MKS PAMP company, I see the continuation of that arc—taking one of the most historically trusted assets and putting it onto modern rails in a way that respects both regulation and innovation. The throughline is simple: I’ve been working on how to scale trust in a digital age.

Nicolas: I remember writing about Libra when it launched. My recollection is that one of the main arguments in its favour was that it would counterbalance the Chinese payment system. Everyone was impressed by how rapidly and at what scale China had shifted its entire payment culture to mobile, and there was concern they would extend that dominance to Africa, Asia, and beyond. Was that a fair reading, or did I over-interpret the geopolitical angle?

Kurt: Not at all—that was certainly one dimension. There is a genuine technology war underway, and who controls global payment infrastructure matters enormously. There’s rarely a winner-takes-all outcome, but there are usually a few winners, and you want to be among them.

That said, there were other dimensions too. Social impact was a significant one—improving the distribution of wealth and giving more people access to exchange. That’s why there were so many social impact organisations in the Libra association. And then there was the question of sovereign debt distribution, which became increasingly sensitive.

Marieke: On the social impact point—that was also a driver for Bitcoin, wasn’t it? The idea of a more equitable financial system. How do you see the current adoption curve of crypto and stablecoins, given everything you’ve witnessed? Is it moving as fast as you expected?

Kurt: A bit slower, honestly. But I think that’s just the nature of these revolutions—they don’t happen in one sweep. Even the shift to plastic and credit cards forty or fifty years ago was incremental. It was one step among many. Money does move on crypto rails today with far less friction than on traditional rails, which are genuinely quite outdated.

Nicolas: Who would you say replaced Libra, or Diem, as the main player? Is Tether the iteration of that vision, perhaps with better timing?

Kurt: They achieved one part of the mission, not the whole. And frankly, that was a source of real frustration at Libra and Diem. We were spending enormous resources educating regulators and talking to governments, while over here Tether and Circle’s Centre Consortium were simply doing what we wanted to do—and nobody was stopping them.

The difference was ambition and approach. Libra and Diem took the right path of engaging regulators directly. Tether found a killer use case: where do I park my money between speculative trades? That was it, and it was enormously successful. They’re very smart people who’ve since parlayed that into other products and services. The challenge now is how they pivot from that original use case into everyday payments—and you can see that effort in USAT, their regulatory-compliant stablecoin.

Companies like PayPal have a significant advantage in that transition because they already have the merchant network and the distribution.

Marieke: That’s a fascinating framing. I was at Circle at the time, working on the launch of Centre. Our approach also involved talking to regulators, but it was simpler — dollar only. Going back to what you said earlier about the politics of money: my understanding was that Libra was conceived as a supranational currency, a basket of five currencies. Do you think that ambition was one of the main obstacles?

Kurt: It was certainly one of many. The thinking behind the basket was sound—it addressed exactly the challenges we see today around interest rates and what happens when they go negative, and how you maintain a treasury in that environment. But it became politically very sensitive around sovereign debt and who controls it. In hindsight, starting simpler, with a smaller initial ambition, might have been the wiser path.

Nicolas: Is there a lesson here for major disruptions generally? That you need a first player to educate regulators, absorb all the obstacles nobody anticipated, and prepare the ground for the next wave?

Kurt: I couldn’t agree more. And starting simple is part of it. We saw this in the ETF space—a great evolution in financial instruments, but some of the early products were structurally too complex to survive. The ones that worked were the ones that were straightforward.

The deeper lesson from Diem is that regulatory fit is not something you add later. It’s a product constraint from day one. Even with all the technical robustness in the world, if your product doesn’t align with how regulators conceptualise risk and monetary sovereignty, it won’t work. And if policymakers can’t explain your product in one clear sentence to their constituents, you don’t really have regulatory alignment.

Nicolas: Their constituents essentially want to know two things: does it create jobs, and does it improve purchasing power.

Kurt: Exactly. The Swiss regulator FINMA went remarkably deep on Diem. I remember discussions about the consensus algorithm—it was based on something called HotStuff, developed by a research team that eventually joined Facebook, built on Byzantine fault tolerance. FINMA wanted to understand: at what point is a transaction considered final, and what happens before that? They were concerned about the chain of claims. If this became systemic—and that was the immediate concern, given the existing user base—how do you manage that chain if something breaks? They got deep into the probability algorithms around transaction finality. It was serious, rigorous work.

Nicolas: That’s the challenge with payments systems generally—they must be universal and large-scale, but also essentially faultless. You need absolute certainty that the money goes where it’s supposed to go.

“Keeping a secret means not telling it. And that’s the essence of zero-knowledge proofs.”

Marieke: After Diem, you moved to Mina Foundation to work on zero-knowledge proofs. Can you explain what that is, and why it matters—assuming no prior knowledge?

Kurt: The core realisation is this: compliance data is everywhere. Countless counterparties ask for the same documents, and every intermediary stores identity or other personal information. That creates privacy risks and inefficiency.

There’s a joke I like: “I can keep a secret—can you?” The point is that keeping a secret means not telling it. And that’s the essence of zero-knowledge proofs. You don’t share your data, but you can still prove that something based on it is true.

I’m not a mathematician, but the explanation that made most sense to me uses a physical metaphor. Imagine a mountain with two entrances. Inside, there’s a complex network of paths—most lead to dead ends, but one connects both entrances. I want to prove to you, Nicolas, that I know the path without telling you what it is. So I walk through once and emerge. You might think I got lucky. But if I do it a hundred times, you become essentially certain I know the path—even though I’ve never shown it to you.

That’s zero-knowledge proof. You can prove you know something without revealing the knowledge itself. The applications are significant: proving you’re above a certain age, or that you don’t come from a restricted jurisdiction, without disclosing your passport. Proving in a vote that you’re a valid constituent without revealing your identity. The reason it hasn’t been more widely adopted, I suspect, is that we haven’t yet had a crisis large enough to force it. Every time I speak at a conference and ask people to raise their hand if their data has been exposed in a breach, every hand goes up. But it hasn’t yet become acute enough to drive mass adoption. That may change—particularly as AI moves from chatbots into devices all around us, capturing vast amounts of data.

Nicolas: Tell us more about Mina itself.

Kurt: It follows the classic foundation-plus-labs structure that became common in crypto. The protocol—Mina—was incubated by a company called o1Labs in San Francisco. The co-founders, Izzy Meckler and Evan Shapiro, along with one of their first engineers, Brandon Case, built something quite remarkable. They realized they could represent the entire state of a blockchain in a single recursive proof of less than 22 kilobytes. Their marketing team came up with “the world’s lightest blockchain,” which was brilliant. It took the world by storm.

The deeper innovation was making that proof programmable—enabling applications to generate proofs from private off-chain data, so that data is never exposed on-chain but gets encapsulated in this infinitely recursive proof structure. That was a genuine breakthrough.

The structure—a foundation overseeing the ecosystem and treasury, with a separate labs entity doing the technical development—was pioneered by the Ethereum Foundation and became the standard model. Polkadot had Web3 Foundation and Parity; Zcash had the Electric Coin Company. The idea was to ensure genuine decentralization and allow ecosystems to grow without centralizing around a single entity.

Marieke: Having operated both types of structure myself, I found the foundation model genuinely difficult. It’s almost like running a publicly listed company but without any of the governance or guardrails. Roles become extremely unclear, and real decentralisation is very hard to achieve in practice.

Kurt: Structurally, it’s not the right way to set things up. You need people in the same room, driven by the same goals, rather than a decentralized group with different agendas. To get a product to market, to iterate, to communicate quickly—it’s very hard when a critical engineer is on the West Coast, another person is in Asia, and the product manager is in Europe. I haven’t seen a single project you could hold up as a textbook success with that structure.

Nicolas: So what you’re both saying is that the foundation model made sense when the concept of crypto protocols was new and you needed to attract participants and grow an ecosystem. But now there’s enough common understanding and sufficient interest across the world that the model may no longer be necessary?

Kurt: At a high level, the foundation is the governance structure and the lab is the product development engine. The question is how resources—typically raised through a token genesis event—get deployed. There’s now a strong move toward winding down foundations and transitioning to decentralized treasury structures. It’s part of the broader collective experiment we’re living through: trust in centralized institutions, whether governments, central banks, or media, is at a historic low and falling. What replaces it? Do decentralized systems actually work? How does decentralized governance function? These are live experiments.

Marieke: There’s an inherent tension there. You need centralization to get things done—to ship an MVP, to build a product. But decentralizing means giving up power, and in some crypto ecosystems it’s fair to say that’s very hard for core teams to actually do.

Kurt: Exactly. What’s the incentive? Even if there’s a genuine greater good at stake, unless your basic needs are met, you still need some incentive to keep working. That’s what these governance structures are trying to sort out. And there’s a broad spectrum—from pure memecoin casinos to projects like Mina with real utility underneath. The experiment continues.

Nicolas: Coming back to privacy: can you explain the difference between privacy and anonymity, and why it matters—particularly given how often people conflate the two, or assume that if something is private it must be dodgy?

Kurt: Anonymity means nobody knows who you are. There can be perfectly legitimate reasons for that. But privacy is different. Privacy means the right parties know what they need to know—and nothing more. That’s the concept of selective disclosure.

The way privacy typically works today is you hand over all your data to another party and trust them to keep it secure. Sadly, through usually no malicious intent on their part, it often isn’t. Bad actors want access to it and find ways in.

In a truly anonymous state, it’s hard to build trust without some form of verification. So the goal is to keep the perimeter of exposed data as small as possible—selective disclosure rather than full exposure.

Nicolas: I serve on the board of the digital arm of La Poste, the French postal service. La Poste is the organisation that knows where you live, because delivering mail is their core mission. I’ve been pushing an idea: during KYC [know your customer], why do you need to disclose your address at all? Couldn’t La Poste simply attest that they know where this person lives, without revealing the address itself? Is that the same concept?

Kurt: Exactly the same. Though it touches something that gets sensitive: at some point, there has to be a trusted source of the underlying data. Garbage in, garbage out —you have to trust someone somewhere. In your example, you’re trusting La Poste as the authoritative source. And you could go further: you could prove that the attestation came from a valid trusted source without even revealing that the source is La Poste.

Marieke: That example feels particularly resonant right now. The number of places where we’ve each deposited our physical address, our passport copy, our phone number—trusting that each institution will protect it—is enormous. And given the scale of cyber attacks and the current social climate, that trust is increasingly misplaced. Is the technology actually ready to address this?

Kurt: Not quite yet. There are interoperability issues between platforms, performance constraints, and other hurdles. But there’s also a broader economic problem: we’ve become accustomed to getting services for free in exchange for our data. People are uncomfortable with giving away their data, but they’re happy to get things for free. Nothing has yet emerged at scale where people are willing to pay for a privacy-preserving alternative. That economic shift has to happen first.

My apartment door is a good illustration. I was happy with the lock I had. Then someone tried to break in, and I got better locks. In retrospect, I should have done it sooner. I think it’s the same with digital privacy—people won’t act until something happens to them personally.

Nicolas: Who decided that a utility bill constitutes proof of address? Is there a law? A banking regulation?

Kurt: I’m not an expert, but from my experience it’s driven by the compliance industry and how they’ve developed frameworks to combat fraud and triangulate identity. It’s not always a utility bill—it can be voter registration or other documents. But it’s an industry convention more than a hard legal requirement.

Marieke: This connects to the unbanked. The way regulation has been defined, to open a bank account you need to prove both identity and a physical address. If you have neither, you’re excluded. Part of the crypto and blockchain movement has been to challenge that—could biometrics, for example, substitute for an address as proof of existence? Projects like WorldCoin are going down that path. But the flip side is that a biometric is a unique and permanent identifier. If that gets compromised, you lose your identity permanently, with no way to reset it.

Kurt: That’s exactly right. And it gets back to the question of which data really needs to be shared, and what the risks are if it’s exposed.

Marieke: You mentioned something called the “Internet of True Things”. Can you explain that concept?

Kurt: Intelligence is moving into all the smart devices around us. Your refrigerator will eventually know you’re out of milk and place an order. There’s an enormous amount of data being captured in the process. The Internet of True Things is the idea that we can rely on this data—verify things as true—without having all the underlying personal data exposed.

Something like Mina has real potential here, because it’s compact enough to run on small devices. Evan Shapiro, one of Mina’s founders, has since launched a project called UserNode, with his blockchain running on mobile devices. The vision is verified truth in the devices around us, with our data protected. Your device performs a transaction, proves it’s authorised, and executes your policy settings—without streaming your entire behavioural data set. Nobody needs to know how much milk you drink.

Nicolas: So about ten years ago we had the Internet of Things—all devices communicating freely, all data circulating and training systems to give us personalised experiences. And now we’re stepping back and saying: actually, free circulation of data is dangerous. We’d rather build a layer that enables authentication and communication without disclosing what’s in the device. And that’s now technically feasible?

Kurt: Technically, yes—but the middleware and application layers still need to be built to make it widely usable. Two years ago, some camera manufacturers like Leica were already integrating zero-knowledge proofs into images, so you could prove a photo hadn’t been digitally altered since capture. I’m not sure where that stands now in terms of wide adoption, but it’s extremely important as deep fakes become more prevalent.

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For decades, America and China have been locked in a structural embrace that neither could easily escape. China manufactured; America consumed. China saved; America borrowed. The dollars that Americans spent on Chinese goods flowed back across the Pacific as purchases of US Treasury bonds, financing the very deficits that kept American consumers buying. Economist Michael Pettis calls this “vendor financing”. Others call it a trap.

The trap worked because the two economies were mirror images. China suppressed domestic consumption—through low wages, restricted social safety nets, and financial repression—to make its manufacturing hyper-competitive. Meanwhile, America ran persistent trade deficits because foreign capital needed somewhere safe to go, and the dollar was the only candidate. Each country’s model required the other’s. Neither could change course without threatening the foundations of its own system.

Fast forward to today’s new technologies and paradigm shift: AI. When looking at the current AI race, most often observers tend to frame it as a clean break: a new technological order that reshapes global power. But the deeper pattern is replicating itself— with one crucial difference: this time, each side is choosing its exposure. China is open-sourcing its intelligence, America is open-sourcing its currency, and the two are converging in the emerging economy of AI agents—each opening its strength, each exposing its flank.

What OpenRouter Tells Us

Let’s look at OpenRouter’s traffic data. Three of the six most-used large language models in the world, by actual production volume, now come from Chinese laboratories. MiniMax M2.5 sits at the top. DeepSeek and Zhipu’s GLM follow closely behind. The largest single consumer of AI inference on the open market is OpenClaw, an autonomous coding agent that routes the bulk of its traffic through Chinese models.

Open Router Data, March 8th, 2026

The mechanism is straightforward price arbitrage. MiniMax M2.5 matches Claude Opus 4.6 on software engineering benchmarks—80.2% versus 80.8%—and costs roughly one-seventeenth the price per token. A workload that costs $100 a day on Claude costs under $5 on MiniMax. Agents, which are indifferent to national origin and acutely sensitive to cost, make the obvious choice.

The economics are not purely a software achievement. China’s total installed power generation capacity reached 3,349 GW by end of 2024. Wind and solar alone hit 1,406 GW, surpassing China’s own 2030 target six years early. Clean energy now accounts for 52% of installed capacity. China spent $625 billion on clean energy in 2024—31% of the entire global total. Compute requires electricity. Cheap, abundant electricity makes cheap inference possible. The price gap between Chinese and American AI is partly an energy infrastructure story, built over decades of directed investment. The US, by contrast, faces genuine data centre power constraints. New capacity is queued behind grid limitations that will take years to resolve.

Then there is the architecture. DeepSeek’s Mixture-of-Experts design activates only a fraction of its parameters during inference. MiniMax M2.5 runs 229 billion total parameters but activates only 10 billion per query. These are structural cost advantages that compound at scale.

Finally, layered on top is straightforward competitive pressure: a dozen Chinese AI companies—Alibaba, ByteDance, Baidu, Tencent, Moonshot, Zhipu, MiniMax and others—compete so aggressively on price that margins have long since turned negative. They are buying market share, and it is working. The consequence extends beyond price. Every query routed to a Chinese model is also a transfer of data onto infrastructure subject to Chinese law. The cost advantage and the data advantage are the same advantage—and the data vulnerability for everyone else is the same vulnerability.

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Money presents itself as uniform. A unit of cash, a bank deposit, and a reserve balance at the central bank are treated as equivalent units of account and means of payment. They circulate at par and move across balance sheets without friction in normal conditions.

But this equivalence does not arise on its own. It rests on institutional arrangements that align distinct liabilities within a single monetary system.

What is known as singleness of money, the principle that all forms of a currency trade at par with one another, depends on a framework of rules, public backstops, and institutional credibility. A commercial bank deposit and a central bank reserve differ in counterparty risk, liquidity, and regulatory treatment. Yet they still trade at par because deposit insurance protects depositors, central banks provide lender of last resort support, and capital and liquidity requirements constrain bank balance sheets. This structure has long underpinned monetary stability, even if it rarely attracts attention outside periods of stress.

The reason it matters now is that this hidden architecture is being rebuilt in public. Right now, without a single headline capturing the full picture, the plumbing of the global economy is being replaced by a new stack—which we decided to call the tokenized money stack. Four major powers—America, China, the United Kingdom, and the European Union—are each racing to build the future of money. And each, when you look closely, is building something subtly but critically different.

Most analysts frame this as a competition: dollar stablecoins versus the digital yuan versus tokenised deposits versus retail CBDCs. What those see is a monetary cold war, fought in code. But that framing misses something important. Each power is building a different piece of the same architecture—the layer it was historically equipped to build —while remaining functionally blind to the layers it most urgently needs.

History explains how each power got here. It also explains why each one is stuck.

The Architecture

Before mapping what each power is building, it helps to be precise about what a complete tokenized money stack—which only exists in theory at this point—actually requires.

At the base sits the wholesale CBDC—the sovereign anchor. This is where monetary sovereignty lives. It enables central bank to central bank settlement, and central bank to commercial bank connection. Nothing above it is truly sovereign without it.

Above that sit deposit tokens—commercial bank money issued onto a blockchain by regulated banks, anchored on the wholesale CBDC beneath. These differ from tokenised deposits, which are an interbank settlement tool that stays within the banking system and never reaches clients directly. Deposit tokens do: a bank client can instruct their bank to mint tokens against their deposit and hold them on a public chain.

At the public-facing layer sit stablecoins and retail CBDCs. This is where a critical distinction is often missed. Both of those things (stablecoins and retail CBDCs) could serve the same use cases: peer-to-peer payments, business to retail, small business to business, and increasingly agentic payments between AI systems operating autonomously. A retail CBDC is the state’s version of this layer; a stablecoin is the private sector’s. The function could be the same. The difference lies in the governance.

Finally, above everything sits the application layer—businesses, platforms, and AI agents—where the value of programmable money is ultimately realised.

We do not yet know which of these layers will prove most valuable. But history offers a guide. The late Clayton Christensen called it the “law of conservation of attractive profits”: when a layer becomes modular and commoditized, attractive profits migrate to an adjacent layer. As Tim O’Reilly observed in his landmark Open Source Paradigm Shifts (2004), where he discusses the PC value chain, IBM commoditized the hardware and value migrated up to Microsoft’s operating system—but it also migrated down to Intel’s microprocessor. Neither direction was obvious in advance. The winners were the ones who understood the new architecture before everyone else did.

The same uncertainty applies here. If stablecoins become the commodity instrument of public-facing payments, value may migrate up to the platforms and AI agents that programme money most effectively. Or it may migrate down, to whoever controls the settlement infrastructure that everything else depends on. We do not know yet. What we do know is that every layer is a candidate—and that any power that cedes a layer has already conceded the argument about where value ends up.

In other words, every sovereign currency that wants to remain relevant in the tokenized economy needs representation across all four levels. Miss a floor and the whole structure waits for a crisis to expose the gap.

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Michael Green bought Bitcoin at $25. Not because he believed in it, but because he was curious—and because a reducing issuance schedule against a shrinking population had a certain Milton Friedman logic to it. He looked closely, found the logic flawed, and sold.

Mike is a market structure analyst, a derivatives specialist, and the Chief Strategist at Simplify Asset Management. His best-known argument is that passive investing—the dominant force in modern markets—rests on a flawed definition at its centre. Passive funds are never truly passive. They transact every day, driven by inflows and outflows, and that mechanical, price-insensitive buying has quietly distorted the way markets discover value. As a result, the passive-dominated S&P 500, Mike argues, has more in common with Bitcoin than most of its investors would like to think.

In this conversation, Mike walks us through the actual properties that made gold suitable as money—not mystique, but chemistry and weight. He explains why the gold standard kept breaking, what the gold clause was and why FDR’s abrogation of it matters more than most accounts of the Great Depression suggest, and why Bitcoin’s issuance schedule, being arbitrary by design, contains the seeds of its own destruction. He also draws a sharp distinction between Bitcoin as a speculative asset and blockchain and tokenization as genuine technology—one he thinks will eventually transform financial markets, slowly and without much fanfare, long after the current noise has faded.

Mike is writing a book about all of this. The first draft was, by his own account, too angry. The second is in progress. This conversation, or the transcript below, is an early glimpse into it. In the meantime, you can follow his work on his Substack yesIgiveafig.com and on X at @ProfPlum99.

“They never truly are passive. They are always transacting.”

Nicolas: Hi, everyone. I’m here with Marieke Flament, my colleague at Currency of Power. Together we host the Currency of Power podcast. Our guest today is Michael Green of Simplify. Hi, Michael! Thank you for joining us.

Michael: It’s a pleasure. Thank you for having me.

Nicolas: I discovered your work almost six years ago when I heard you on a podcast with Erik Torenberg discussing passive investing, which is a major topic for you. You’ve been quoted widely about market structure and the systemic risks associated with passive investing. Maybe we can start with some background—what was your career like, what got you interested in passive investing and market structure, and what do you do these days at Simplify?

Michael: I’ve been in asset management for a long time. I graduated from the University of Pennsylvania’s Wharton School of Business in 1992. At the time I was more interested in understanding businesses per se, so I went into strategic management consulting with a focus on mergers and acquisitions—the buying and selling of business units within corporations and the valuation work around them.

By the mid-1990s I had accumulated what I imagined was a deep enough pool of expertise to build, along with some partners, a software company called Value Add Software. We ultimately sold to a division that was then acquired by Credit Suisse in the late 1990s. That transition moved me from software that advised asset managers to actually managing asset management platforms. I started in the small cap value space, consistent with my interest in understanding companies, but also candidly reflecting the opportunity I saw at the time—US small cap value, along with emerging markets, had suffered an extended period of neglect.

I was right about the valuation, otherwise I probably wouldn’t be here. Markets moved in my favour for the next couple of years. Then in 2006 I saw similar concerns around overvaluation in small caps, and was fortunate enough to join a firm called Canyon Partners, a roughly $25 billion multi-strat fund. They had been a client of mine since 1995 and had repeatedly tried to get me to join. Finally in 2006 they said, “Is it us or is it Los Angeles?”— which is where they were based. The answer was Los Angeles. My wife hated to drive, my kids were being raised in New York City, and they said that was fine because they wanted to open a New York City office. Over the next eight years I built that to a team of about 15 people managing somewhere around five billion dollars in assets.

I then left to start my own hedge fund, seeded by Soros. Scott Bessent, who is currently US Secretary of the Treasury, was the CIO at Soros at that time—that’s how I got to know Scott. It was an epic disaster, I can’t put it any other way. Performance was actually quite good, but a lawsuit was maliciously filed against me at the start of the firm by an individual who claimed they were owed a piece of the business. I spent the next couple of years fighting it. That experience was actually a touch point when I later joined Peter Thiel—our familiarity with the legal system. I won the lawsuit but lost the war. When Scott Bessent left Soros in 2015, there was something called the “Soros Massacre”, in which the Soros family office, with some degree of vindictiveness, fired all the managers Scott had brought in regardless of their performance. That ended with me shutting down the fund.

In many ways that was a good thing, because it created a period where I was not managing money. Instead I took something of a sabbatical and focused on what I had learned. I was incredibly fortunate that a partner at AQR, Lasse Pedersen, released a paper called Sharpening the Arithmetic of Active Management. In it he highlighted a feature and an assumption of passive investing articulated in Bill Sharpe’s 1991 paper, The Arithmetic of Active Management, which is the source of every piece of commentary you’ve ever heard—that active and passive own the same things in the market, and therefore the only difference is fees.

Lasse’s critical insight was that Sharpe’s definition of a passive investor is someone who never transacts—they only hold. He noted that during periods of index reconstitution, when stocks enter or leave the index, that causes a change in the underlying portfolio that forces passive managers to trade. That was a far more significant insight than most people gave it credit for. It rips apart the edifice of passive investing as a theory, because they are now required to transact.

My contribution was recognising that Lasse had missed another form of portfolio construction change: when an investor puts cash into these funds, that changes the portfolio composition and forces them to transact at the new composition. Since passive funds receive inflows and outflows every single day—mostly inflows—they are never truly passive. They are always transacting. As a result, the entire theory of passive investing rests on a flawed definition at its centre. Once you recognise this, you can build tools and strategies to exploit what is actually a systematic algorithm that simply says: did you give me cash? If so, buy.

Nicolas: The idea being that inflows or outflows send a signal to the market and move supply and demand, and therefore price.

Michael: It doesn’t send a signal per se—or rather, it is a signal, but it is an execute-now signal to the passive strategy.

Marieke: Do you think strategies are evolving because of your work—that people are now building tools to play out what you’ve just described?

Michael: Absolutely. Several things flow from my work, including a much more mechanical reason for the outperformance of passive strategies. They are a little like a surfer who has caught a wave, except that because of the surfer’s popularity, everybody is adding water to the wave, making it bigger and bigger. That is exploitable.

The first place I chose to exploit it was around an event some listeners may know. On 5 February 2018, there was an event called Volmageddon, in which a particular class of strategies imploded spectacularly in a single day. My work had suggested this was highly probable—I had assigned roughly a 95% probability to it, while the market was pricing it at less than 1%. That allowed me both to predict the event and to position my employer at the time, Peter Thiel, to profit from it.

Candidly, it is also something of a gambler’s curse. I won on my first pull of the slot machine and probably became somewhat immune to the complexities that arise when you move from a single security strategy—like the XIV implosion—to an index that contains multitudes. There is quite a bit of difference between the two, and that is really what much of my most recent work has been about: figuring out how to exploit what is happening within the actual index and its flows.

Nicolas: And that is what you do as Chief Strategist at Simplify?

Michael: We continue to build strategies that exploit these phenomena, using them either to protect investor portfolios or to offer enhanced returns. The most recent work has just been commercialised—we rolled out an implementation of it in the high yield strategy I run at Simplify. We are evaluating other areas where we can apply these insights. It is incredibly fruitful and exciting work.

“A decay factor set by a single individual—and I want to emphasise that.”

Nicolas: As part of Currency of Power—both a newsletter and a podcast—our focus is crypto, the whole context of debasement, the changing world order, and the emerging monetary order dominated by stablecoins, and what some people call the cold war between China and the US. You have been involved in discussions around Bitcoin and gold. Is there a relation between that and your work at Simplify, or is it more commentary on the side?

Michael: It is very much tied in. Bitcoin in particular has been an area of focus as a tradable security. I became aware of Bitcoin very early—2009, 2010—and actually bought some at an average price of about $25, simply out of curiosity. I thought: this is actually interesting because if we think about Milton Friedman’s historical models for building an ideal currency, there would be an issuance rate tied to some metric. Friedman typically thought about population growth; I would more accurately link it to labour force growth. And I was facing a world in which my demographic projections pointed to population growth turning negative over the next 50 years.

That trajectory seems very much in play. More and more countries are following it. I would encourage people to ignore the UN population forecast because of assumptions embedded in it—it currently looks like the global population could peak somewhere around 2035. Since that is within the long-term market framework I tend to use, Bitcoin’s issuance schedule became interesting: maybe this is actually an optimal schedule in the context of a contracting population. A reducing rate of issuance over time.

I fairly quickly concluded, though, that Bitcoin’s issuance schedule was largely arbitrary in its construction. There is a decay factor set by a single individual—and I want to emphasise that. That creates a fragility, and it turns out that it is indeed the wrong issuance schedule.

Nicolas: You mean the issuance schedule—the rule under which Bitcoins are mined up to a cap of 21 million?

Michael: Exactly. The halvings. That decay factor is arbitrary, embedded in the programming itself. It is one of the reasons I have concluded that Bitcoin must ultimately fail. It does create some of the excitement people see around reduced issuance and scarce supply, but it also contains the seeds of its own destruction, because it is an arbitrary metric selected by a single individual. That is precisely why we turn to markets and competition—we want many people to put forward their ideas of what issuance schedules should look like, and we want the right schedule to emerge somewhat organically. There is an inherent conflict within the entire theory of Bitcoin.

That said, these issues are closely linked to my market structure work. Bitcoin, because it has no underlying fundamental cash flow, is actually one of the cleanest abstractions of what has happened to US markets. Most people buying an NVIDIA or an S&P 500 tracker—but what is an S&P 500? It turns out it is a little like Bitcoin: it has a slippery definition. Sometimes it is a technology index, sometimes a financials index, depending on the composition of its components. If you do not actually know what something is, how do you value it? We are consumed by the idea of the wisdom of crowds, assuming that price discovery will emerge organically, without understanding that when we put in place mechanical implementations—like a Bitcoin issuance schedule or automatic 401k contributions into the S&P 500—we are perverting the market discovery process and changing the character of the market itself.

“If you are going to invest in a Ponzi scheme, you want to invest in the longest-running one.”

Nicolas: Before we go deeper into Bitcoin, I wanted to discuss gold. You have explained in plain terms why gold is deemed to have value. With all the conversations around crypto, we have been brought back to first principles—why does a digital image of a monkey have value, why does Bitcoin? And yet there is this thing called gold, which has had value for thousands of years. Can you revisit that for us?

Michael: Gold is an element on the periodic table. It resides in a region of the table populated by metals, and those metals have certain characteristics. We talk about gold as money, but look at what sits next to it—silver, copper, tin, nickel—all of which have been used in coinage. That is really the critical point for understanding why gold has value.

Gold has unique properties that made it suitable as a large denomination coin in historical periods when we lacked the ability to embed hidden security fibres in paper currency. Gold is very soft, meaning it could be stamped. It does not tarnish because it does not oxidise. And it has a specific atomic weight—which we did not know as such at the time, but we simply called mass—that makes it distinct from any other type of coinage. I can determine how pure a gold coin is simply by weighing it on a rudimentary scale.

That is why it was used as coinage in the ancient world. Most people never saw it because it is relatively scarce, unlike copper or tin, which were also used as coinage but are broadly available and can be distributed at low cost. Gold was expensive and rare. As a result, it played a unique role as the large denomination component that people would covet. But at the end of the day, it was a creation of the state. The king of Lydia [Croesus] was the first to deploy gold coinage—actually what was called electrum, a marriage of silver and gold readily available near Greece where he was based. It was literally a creation of the state, used to settle debts.

And that is what people do not understand about money. It is what they do not understand about the JP Morgan comment from the early 1900s: “Gold is money, everything else is credit.” What he is referring to is a very specific feature of currency—its role is to legally cancel debts. That is all it does. Now, if you are going to have something that cancels debt, that can be a gun or a poison, but it is much more civil to settle with legal coinage, and polite society requires a tool for that.

Nicolas: So the state decided that gold is what we will use to settle debts.

Michael: And they enforced that with the military and police and everything else.

Marieke: Maybe we can double-click on that, because one thing making a lot of headlines is debasement. China is holding gold, more central banks are holding gold. What do you see as gold’s function in this particular moment, and as something that helps preserve reserve currency status?

Michael: What is happening in gold right now is broadly similar to the narrative around Bitcoin for an extended period—it is a mechanism that allows you to step outside a state-based system, precisely because so many other states continue to recognise its value. You will incur a large cost if you liquidate your assets, convert them to gold, transit across a border, and try to re-liquidate in a safer regime. But that is really what people are trying to use it for. We now have electronic versions of gold, just as we have Bitcoin, that people use to speculate, and that is really what is behind most of the latest moves in gold.

Most Americans, myself included, tend to assume we sit at the centre of the universe. But what is driving gold right now is not primarily what is happening in the United States. Gold investors should be paying far more attention to China, where we saw physical premiums for gold and a massive dislocation of a silver ETF from its underlying—suggesting China was actually the locus of the last major move. The break we have recently seen reflects some of that speculation being unwound after the Chinese government placed limits on leverage and trading in these vehicles, ending a Western arbitrage that was draining reserves of silver and gold to satisfy contracts in China.

Longer term, is there still a broad fear of debasement? Yes. And debasement is really important to understand in the context of the history I gave you. It is very hard to debase gold because of weights and measures—this is one of the core tools almost all governments have. Napoleon, for example, introduced the Mesures usuelles system in 1812, which gave us the metric system. There is a gram and kilogram weight sitting somewhere in Paris that is the exact measure of those quantities, and we have scientists trained to use atomic systems to get ever more precise, because the measurements actually matter.

In old times, if the government was clipping corners off coins and re-melting them to make additional coinage, the coins got smaller, and you could detect that through weighing. It is much harder in a digital world, because we have to track how much coinage the government is issuing relative to a forward unknown. What are tax receipts going to be? So it is both easier to get caught up in a narrative around debasement, and in many ways harder to validate it.

Nicolas: Because today we do not have a gold standard. No state has issued a decree that gold is worth a fixed amount. It relies entirely on market forces.

Michael: Market forces. Yes.

Nicolas: I have an anecdote about that. I was at an event in London where Anatole Kaletsky, chief economist at Gavekal, was on a panel about debasement, inflation, and the best hedge against it. They did not mention crypto once. Afterwards I asked him why—in tech, everyone is betting on crypto as an inflation hedge. His reply essentially was [my words]: “Bitcoin is a Ponzi scheme that has been going on for 15 years, and gold is a Ponzi scheme that has been going on for thousands of years”. I understand he would rather have his clients buy gold.

Michael: I think that is broadly correct. At the end of the day, we are talking about secondary claims largely established by speculators. And to his point, if you are going to invest in a Ponzi scheme, you want to invest in the longest-running one.

Bitcoiners will call this the Lindy effect. But it is actually quite interesting that you can identify a period in the United States when Bitcoin briefly surpassed gold in that framework. The younger, more tech-forward generation, misunderstanding what gold was—understandable given the misinformation flowing across YouTube and crypto channels—decided Bitcoin was better. We actually saw gold trade off relative to Bitcoin as that substitution was theorised.

What people did not understand about Bitcoin is that, unlike gold, it has a maintenance cost. You have to keep the network running, or your self-custodied Bitcoin simply becomes a flash drive worth a nickel rather than a hundred million dollars. Gold does not have that property. If I stopped all gold mining, if I stopped all commerce, gold would still remain gold. Would it have value? That is open to debate. But at least it would remain gold. Bitcoin does not have that property. It is an incredibly fragile construct that requires people not only to continue believing in it, but to actively invest in it.

Marieke: And to keep mining it. Which leads to another argument we hear more and more—that Bitcoin represents energy, and therefore energy is the new basis for money.

Michael: That is just a narrative. You are being sold something. Energy is not an asset you hold; it is a liability—an obligation you are assuming somebody else will perform. If they do not, your Bitcoin becomes worthless. So what is the actual energy content of that Bitcoin? Zero.

“How much does a Bitcoin weigh?”

Nicolas: Do you have views on why gold standard regimes have broken down multiple times in history? We had the gold standard, then it broke. We tried to reinstate it at Bretton Woods in 1944, and it broke in 1971. Karl Polanyi’s The Great Transformation argues that the attempt to restore the gold standard contributed to World War II by imposing rigidity on the economy. Can you explain why gold is still less rigid than Bitcoin—you can still mine more gold, there is no hard cap—and yet the gold standard always broke eventually?

Michael: There are a couple of factors. Gold had a unique role in cancelling debt. The real event people should pay attention to in the 1930s was FDR’s abrogation of the gold clause, which was a private sector contract option on behalf of lenders allowing them to demand payment in gold on the terms at which the contract was entered into. This was an explicit debasement-curing clause, an outgrowth from the US Civil War, during which the US government issued greenbacks that became deeply devalued relative to gold. Bankers were therefore able to insert into private contracts a clause allowing them to demand payment in gold.

In a fiat or paper currency system it is hard to validate whether the forward claims—the taxing capability that gives the currency its ability to cancel future debt—are actually sound. As a result, credit tends to get extended significantly relative to the quantity of currency that borrowers can actually earn. That is what we call a default: when you cannot make the payments.

What led to the collapse of the gold standard in the 1930s was that the amount of credit subject to the gold clause had risen to roughly $100 billion, while there was only about $1 billion worth of gold in private hands. Nobody could actually settle their debts. That produced a debt-deflation and a credit crisis, with credit values falling sharply as people discovered those claims could not be met. The credit itself had served as collateral for other borrowings, which were then impaired—and that collapse across asset values and collateral is what we call the Great Depression.

Similar panics occurred earlier: 1907, and 1873, which involved the demonetisation of silver. The recurring pattern is that credit gets extended, the means for settling that credit prove inadequate, and the result is a collapse in asset values and an unwinding of the credit cycle.

One way to deal with that is to declare that every dollar is now worth less, but can still be used to cancel debts. That is effectively a debt jubilee. If it is done through debasement, those who hold currency are the most adversely affected. Those who hold creditor claims can see an improvement in their condition if their primary concern is return of [nominal] capital rather than perfecting the [real] claim. That means junior claims in a capital stack tend to benefit most. Equity, as the residual—even below junior debt—benefits most. It is the derivative tail on that trade. And that is what we see every time we resolve a credit tightening: the junkiest equities, the junkiest credits, the worst quality stuff, when the system is then flooded with liquidity, tend to radically outperform because they have effectively been granted a new lease on life.

Unfortunately, things like Bitcoin are incredibly fragile to those events precisely because they rest on a fundamental misunderstanding.

Marieke: Hearing how you framed the 1930s, it is almost impossible not to look at where we are today and see some of the same patterns. What parallels do you draw, and what does that mean for where things are going?

Michael: The most important one is a breakdown in what is called the wisdom of crowds. Index investing, efficient market hypotheses, the various theories of how markets work—almost all of them presuppose something mistakenly equated with Adam Smith’s invisible hand, though that is actually a different mechanism. What they really describe are mean-reverting discovery machines that alternately over- and under-price things, with speculators serving to guide prices towards fair value.

That works well when we all understand what we are actually trading. When I say NVIDIA, I think of a stream of cash flows generated through the sale of semiconductors and ancillary services, and I can evaluate whether the prospect of those cash flows justifies today’s price. But if NVIDIA is just a ticker on a screen and I have no idea what it is, I have no mechanism for judging whether it is overvalued or undervalued. I am relying entirely on other people to do that work.

I did an experiment on Twitter to illustrate this—it will appear in the book I am writing. I repeated the famous experiment of Francis Galton that established the wisdom of crowds: a county fair in rural England where fair-goers were asked to guess the weight of an ox. Galton’s hypothesis was that random members of the public would produce worse forecasts than educated experts. He was stunned to find the collective guess came within one pound of the 1,700-pound ox.

I put the same question to Twitter—how much does an adult ox weigh?—and got a log-normal distribution centred right around 1,700 pounds. The participants knew what an ox was and had some basis for thinking about it. I then asked how much an adult higgendorphus weighs. A higgendorphus is a fantastical creature of my own invention. That same contest produced a U-shaped distribution heavily weighted to the tails, because nobody could say with any confidence: I have seen a higgendorphus; there is no way it weighs 3,000 kilograms.

How much does a Bitcoin weigh? It is a distribution that naturally lends itself to extreme moves in either direction. This is why, when people point to Bitcoin surviving 90% drawdowns, my reaction is: of course, because once it draws down 90%, the only remaining participants are those convinced it is a giant thing. It rapidly swings back until it hits the logical limit where the cost of maintaining the network exceeds the value of securing it, and the system breaks down.

Marieke: Very interesting. Prediction markets are becoming more prevalent. Do you think they help change how investing is done—that they better reflect the wisdom of crowds?

Michael: They can. And this is unfortunately one of the great problems of our time: there is always a little bit of truth to things. Bitcoin—a reducing level of issuance against a population that is not growing nearly as fast. There are seeds of Milton Friedman in it. I took a position, examined it, and realised it does not do what I thought. It has the seeds of its own destruction. Do I wish I had held all of it and become fantastically wealthy? Sure, who does not want to be a billionaire. But it is more intellectually satisfying to have solved the problem. That is what actually motivates me—the intellectual curiosity. And I have been fortunate that the money has by and large followed.

The simple reality is that people are slowly finding their way to the fundamental value of the system, which is unfortunately negative.

“Two out of three kill shots not enough for you?”

Nicolas: Coming back to the collapse of the gold standard—you said it collapsed essentially when there was too much credit compared to the volume of hard currency. But is it not also true that a lot of credit reflects productive investment and entrepreneurial activity? Is excess credit not also a feature of a growing, productive economy?

Michael: It is an interesting question. The existence of credit is a good thing—credit is an asset, a claim I hold against you. Where credit breaks down is when I have improperly forecast your ability to repay. That can occur because you have misrepresented yourself—fraud. It can occur because the business ventures you described failed to materialise. It can occur because so many people saw the expansion of credit and forecast an environment in which asset values would rise enough to settle those debts regardless of business prospects—that is what collateral is.

Excess credit means nothing to me except against a forward unknowable outcome: how much do we have to settle those debts? And ironically, one of the tools we use to settle debt is the issuance of new credit. I can take credit from bank B to pay off bank A. When we enter a credit cycle, I am uniquely exposed if I have to rely on bank B to repay bank A, and bank B says: we are not lending right now because things are bad.

So when you talk about excess credit, there is no right answer. If in the process of funding investments we make radical discoveries that dramatically improve human productivity and increase the quantity of goods and services available, then maybe that was a very good thing. Credit transfers resources from the future—the obligation to repay—to the present—the need to invest.

Much of my work boils down to what I call financial primitives: currency exists to cancel debt; debt exists to transport resources across time; equity is the residual, measured in currency. That creates a trinity that constitutes our entire financial system. We also have a unique entity called government, which can inject additional currency into the system when it determines that the social ramifications of a widespread credit-driven change of control are too disruptive. That is what those worried about hard money are really reacting to: the degree of restraint with which that external player respects the rules under which contracts were entered into.

Marieke: Maybe before we move on to Bitcoin—you mentioned a book. What is the thesis?

Michael: The book is about the impact of passive investing. It is called The Greatest Story Ever Sold—not told, sold. It covers many of the things we are discussing right now, with a sharper focus on markets and their implications.

Marieke: A good segue, then, into the greatest story ever sold. Can Bitcoin replace gold?

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In January 2026, two announcements passed almost unnoticed in the Western press. The People’s Bank of China revealed that the value of its gold reserves had surged from $319.45 billion to $369.58 billion in a single month. Days later, Beijing announced it would “tighten virtual currency restrictions” in 2026, reinforcing its 2021 ban on crypto trading and mining.

These confirm that the geopolitical fault lines of money are shifting. For the last few months, the prevailing narrative coming from the US has been that stablecoins, tokenized assets and Bitcoin are the future of finance—that Bitcoin is the ultimate neutral reserve asset, a digital gold that transcends borders, stablecoins the rails of the future and tokenisation of everything inevitable. Beijing, however, has reached a different conclusion: decentralized networks are not truly decentralized, stablecoins remain subject to US hegemony, and Bitcoin itself is not neutral.

As the US aggressively integrates crypto into its financial system under the Trump administration—what we recently called the “Trump Shock”—China is moving in the opposite direction, accumulating gold at unprecedented rates while tightening controls on any crypto asset it does not govern. Rather than confronting America head-on and trying to reclaim crypto dominance, China appears to be exiting the game almost entirely to play a different one.

In other words, we are witnessing a monetary bifurcation. The US is building a financial system anchored in code and credit—Bitcoin and dollar-backed stablecoins. China is returning to metal—gold as the foundation for a dedollarized order.

This divergence mirrors a deeper pattern in how these superpowers approach economic development. As Nicolas pointed out last year in Drift Signal, the US bets on software, AI, and code in general—building digital infrastructure that scales globally at near-zero marginal cost. China, meanwhile, bets on factories, manufacturing, and atoms—building physical infrastructure that produces tangible goods. The same division is now playing out in money itself. America is building a monetary system in software. China is building one in metal.

The Americanization of Bitcoin

From Beijing’s vantage point, the ‘decentralized’ nature of Bitcoin is increasingly a mirage, the hegemony of stablecoins a trap, and the tokenization of real world assets another way for the US to ensure dollarization of the world. The US has successfully co-opted the crypto ecosystem and evangelized everywhere that the world will be tokenized—Larry Fink, Blackrock’s CEO has been evangelising the world, from the UAE to the halls of Davos on tokenization of finance. Under Trump, the US officially wants to become the “crypto capital of the world”—home to the largest regulated exchanges like Coinbase, and issuers of dollar denominated stablecoins like Circle and now Tether.

When Trump publicly endorsed Bitcoin and literally suggested it could “pay off the $35 trillion US debt,” he wasn’t just speaking to voters or industry; he was signaling to Beijing that crypto was becoming a vector of American financial power. Some American companies rely on Bitcoin in their treasuries—MicroStrategy alone holds over 450,000 BTC, roughly 2% of Bitcoin’s total supply. American ETFs hold it, and American regulators are creating the frameworks—like the GENIUS Act—to enable it.

This is the SaaS model applied to money. Bitcoin and stablecoins are software products that scale globally, require minimal physical infrastructure, and generate network effects that entrench American financial dominance. Just as Microsoft and Google became essential infrastructure for the digital economy, Bitcoin, USDC and USDT are becoming essential rails for the tokenized economy. Control the code, control the system.

What interest does China have in propping up an asset class that extends the reach of their primary geopolitical rival? The answer came in February 2026, when Reuters reported China’s vow to “tighten virtual currency restrictions,” reaffirming its stance against any tokenized asset outside their control. As Noelle Acheson rightly points out in Crypto is Macro, it is important to understand that this is not a ban, it is a tightening of control.

Crypto is Macro Now

No, China is not banning tokenization

“We have to encourage the future we want rather than trying to prevent the future we fear.” – Bill Joy …

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2 months ago · 4 likes · Noelle Acheson

The Gold Standard of Dedollarization

While the US bets on digital code, China is betting on atoms.

Beijing is aggressively buying gold to anchor a payment system decoupled from the dollar. In just one month, the value of China’s gold reserves jumped by $50 billion. As Izabella Kaminska noted in her excellent publication The Peg, this shift to hard assets is the cornerstone of a new dedollarized payment architecture.

The Peg

China’s search for a dollar alternative is accelerating, says Bessent

Treasury Secretary Scott Bessent made an intriguing comment this week that has largely flown under the radar in financial markets…

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2 months ago · 4 likes · 1 comment · Izabella Kaminska

The logic is elegant and strategic. Gold has a distinct advantage over Bitcoin for a rival superpower: the US may hold a lot of it, but they cannot control gold the way they can control the on-ramps, off-ramps, and regulatory framework of the crypto economy. Gold is universally trusted, non-programmable, immune to software updates, quantum computing threats, or 51% attacks.

Unlike Bitcoin’s cryptographic security, which relies on mathematical assumptions about computational difficulty, gold’s value is secured by physics. You cannot hack atomic structure. You cannot fork gold into ‘Gold Classic’ and ‘Gold Cash.’ And critically for China’s purposes, no amount of American regulatory power can freeze gold bars sitting in Shanghai vaults the way OFAC sanctions can freeze digital assets routed through US-controlled infrastructure.

This is the factory model applied to money. Gold requires physical mining, refining, storage, and transportation—exactly the kind of supply chain dominance China has spent decades building. While America optimizes for code that can be copied infinitely, China optimizes for atoms that must be extracted, processed, and secured. It’s a return to industrial-age economics in the monetary sphere, and it plays directly to China’s strengths.

Gold accumulation reveals China is seeking a system completely decoupled from the dollar. Beijing is comfortable relying on gold as their anchor while the US tries to leverage Bitcoin and debt-backed stablecoins to financialize the internet. It is a bifurcation of trust: the West trusts code and credit; the East trusts metal and atoms.

Treasury Secretary Scott Bessent noted in recent testimony that US officials had heard rumors China may be developing digital assets backed by gold rather than the RMB, possibly using Hong Kong as a testing ground. Yet as Izabella Kaminska observes in The Peg, China faces a structural constraint. Reserve currency issuers historically run external deficits, supplying safe assets to global markets. China’s export surplus model produces the opposite configuration. A gold-backed stablecoin could provide cross-border settlement outside dollar clearing without fully liberalizing the capital account, but it would impose discipline on monetary expansion, limiting tools central to China’s export-led development model.

Gold accumulation alone does not create a functioning payment system. As Jess Hoversen points out in the recently launched Hegemoney, China is building the digital infrastructure to operationalize its dedollarization strategy. The Cross-Border Interbank Payment System (CIPS) processed nearly $25 trillion in 2024, up from $5 trillion in 2019, streamlining RMB settlements outside SWIFT. mBridge, a joint project with Thailand, UAE, and Saudi Arabia, enables instant cross-border CBDC settlements, processing over $55 billion across 4,000 transactions since launch. In January 2026, China became the first country to launch an interest-bearing CBDC, giving the digital yuan a structural advantage over zero-yield stablecoins in cross-border transactions. These are the rails through which gold-backed reserves would flow—the digital plumbing for a commodity-anchored system.

Hegemoney

Red herring

Last week, Treasury Secretary Scott Bessent made an interesting comment that got front-page billing in the South China Morning Post but basically nowhere else…

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2 months ago · 34 likes · 1 comment · Jess Hoversen

The Shadow Mining Strategy

But China has not entirely abandoned the Bitcoin ecosystem—they’ve simply repositioned within it.

While China banned Bitcoin trading and mining in 2021, prompting a massive hashrate migration to the US and other jurisdictions, credible reports suggest significant underground mining operations continue to operate within China, often tolerated by local authorities. Though the US now officially leads in hashrate, China retains substantial control over mining hardware manufacturing—companies like Bitmain (a company that has been the focus of US National Security probe) and MicroBT still dominate ASIC production—and likely maintains more covert mining capacity than publicly acknowledged.

This positioning reveals the strategic asymmetry at the heart of the bifurcation. America controls the software layer—the exchanges, the regulatory frameworks, the stablecoin USD denomination and its infrastructure. China still controls significant portions of the hardware layer—the physical mining equipment, the manufacturing capacity, the supply chains.

The pattern repeats across the broader economy. American tech companies design the chips; Chinese factories manufacture them. American platforms write the code; Chinese suppliers build the servers. With Bitcoin, American institutions accumulate the asset while Chinese factories produce the machines that secure it.

From a strategic perspective, this positioning offers unique leverage.

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Sinéad O’Sullivan reverse-engineered F-16 fighter jets early in her career, trying to work out what China might have copied and how they might have built their own. That engineering lens—looking at systems, understanding how they actually work rather than how we assume they work—has shaped everything she’s done since.

These days, she applies the same approach to monetary policy, industrial strategy, and the widening gap between East and West. Her conclusions are uncomfortable: the West’s economic coordination mechanism broke in 2008 and was never fixed. China built a system that can tolerate instability precisely because it knows where to direct it. And Donald Trump, of all people, intuitively grasps what mainstream economists have missed—that someone needs to be coordinating the economy, and right now, no one is.

Sinéad isn’t a monetary policy expert, and she’ll tell you that straight away. But sometimes the outsider’s perspective reveals what specialists can’t see. In this conversation, she walks us through China’s bimodal currency system, the role of Hong Kong as a pressure absorber, why central bank independence is a recent Western invention we’ve turned into a moral imperative, and how quantitative easing replaced one broken coordination system with an even cruder one.

She also explains why US biotech PhDs are moving to China, why Meta is quietly building a compute trading desk, and why the real competition isn’t between currencies—it’s between coordination systems. One works. One doesn’t. And the gap between them is widening.

Nicolas: I’m Nicolas Colin. I’m with Marieke Flament on the newly launched Currency of Power podcast, and we welcome our first guest, Sinéad O’Sullivan. Welcome, Sinéad!

Sinéad: Thank you for having me. I’m delighted to discuss some meaty topics you’ve presented for today.

Nicolas: We have a lot to cover. We want to talk about China, about China’s central bank specifically, and then about the economy as a whole—distribution, coordination, how free money has made the economy difficult to handle for governments and the financial system. We’ll start with China in the first hour, then switch to the other topic in the second hour.

But before that, we wanted to know more about you. I discovered your work through an article in the Financial Times a few months ago about the space industry, titled In space, nobody can hear you budget—a clever reference to the Alien film, which I loved. I had to read it because I’m interested in deep tech these days, especially space tech.

Later, I discovered your Substack called But This Time It’s Different, which you write and produce as a podcast with Alex Chalmers. I have a connection with him as well! I don’t know Alex, but the same day a few months ago, we both published pieces on the French nuclear industry (see Alex’s and mine). Someone told me, “This guy just published the same day on the exact same topic. You should check him out.”

Sinéad: Alex and I started this podcast several months ago. We’re good friends and we talk about random topics. It’s called But This Time It’s Different because of how people keep saying, “This time it’s different, it will fail this time,” or “The system will collapse this time,” yet things don’t behave as commonly discussed. Alex and I aren’t great at podcasting—we don’t have the time to throw at it. We keep talking about going back and doing more, but I’ve taken over the Substack writing because it’s quick and easy to put down my thoughts. So our great podcast on geopolitics and technology has turned into this brain output I have every now and again on different topics, from China geopolitics to space to whatever enters my mind that week.

“A master at absolutely nothing”

Nicolas: Tell us more about you before we jump into the China topic. When I googled you, I saw you describe yourself as a strategist and an engineer involved in the space industry, but you also write about venture capital and the economy as a whole. I also read that you’re into wine and pastry.

Sinéad: Who isn’t into wine and pastry? I am what the technical term is: a master at absolutely nothing. I try doing everything. My background is engineering, complex systems engineering, mostly in defence and space industries. As I moved through my career, I ended up looking more at programme management, budget, finance, and large-scale projects for the government and private sector. This is where my work started mixing with industrial policy and how governments coordinate with technology and finance. This brought me into the complex world of capital markets—why do they act this way? If I am creating a programme for the Department of Defence to enact a new technology, what levers does the government have and what levers does the private capital market sector have? The more I got into this, the more I realised there are many unanswered questions. I ended up spending most of my time looking at the interaction of geopolitics, technology, and capital markets, particularly where the government can play and where the private sector should stay.

This ultimately led to me heading up interesting geopolitics projects at MIT and then moving to the Institute for Strategy and Competitiveness at Harvard Business School, looking at economic strategy. We were involved in the reconfiguration of a G10 economic strategy, looking at exports and imports as competitiveness tools. We did national security work and competitiveness through technologies, various things surrounding strategy and looking at what is the strategy in terms of the private and public sectors to create competitiveness. When I say competitiveness, most of this work vis-à-vis the government was in the US with China. Since day one of my work, even as an engineer, my work has been focused on what China is doing, what the US is doing, and what happens in that gap—who gets to own that technology, those capabilities. Most of the lens I have with China comes from a specific perspective: how does China compete, how does the US compete, and is everyone else flailing around in the middle?

I take a systems engineering lens to topics. I have to admit these are not my topics of expertise. These are topics I have taken a complex system lens to as an outsider and poked them, asking how does this actually work if I don’t know anything about it? I apply an engineering lens to it. What are the dynamics of monetary policy and what are the dynamics of money that create competitiveness?

Nicolas: Let’s jump right in. Marieke is more of the China expert among us. She used to live there and speaks the language.

Marieke: I appreciate the fact that you’re framing yourself as not an expert, but the way you’re proceeding is interesting, which is why we’re keen to look into it. China is something I had the opportunity to live in 20 years ago. I saw China evolve through different lenses and went back recently. I was impressed at the speed of change and the depth of technological adoption. I went there with my family—just a small anecdote before we go into it—I was with my six-year-old son and his conclusion is that when he grows up, he’s going to go to China to learn about all their technologies and bring them back to make Europe better. That’s the conclusion of a six-year-old after three weeks!

Sinéad: A smart six-year-old.

“Central banking independence equals good”

Marieke: He saw something impressive. I’m keen to know: you mentioned how you approached China and why you started looking at it. Is there a key moment that started you looking more in depth at China and in particular the Chinese monetary system? What was the impetus for that?

Sinéad: This conversation for me is biased towards that specific lens. I grew up career-wise in this area. I’m from Ireland, which is militarily neutral. Being a space and defence engineer growing up through the US military system, I had a different perspective. Most of my work was looking at China as the enemy. My first job out of college was reverse engineering an F-16 fighter jet to figure out what they could reverse engineer from it, so we could understand, using that data, how they might have engineered their jet so we could reverse engineer theirs. This is the kind of thing I spent many years thinking about: what is China doing and specifically what have they taken from the US that they are now using in their own technology? There was this strong idea of China mimicking, copying, and building on US capabilities to use as adversarial technology against the US.

This has changed drastically, as your six-year-old has picked up on. As I moved through this idea of China as the sworn enemy, we’ve moved into a political and competitive domain unlike the 20, 30, 40 years before it, particularly regarding the ways the West now views the East in terms of competitiveness. In the last week or two, we have seen multiple European leaders over in China meeting with Xi Jinping, saying things I would never have thought of before. We had Micheál Martin from Ireland meeting with Xi and coming out saying, “This is fantastic. We need to create this direct flight from Dublin to Shanghai.” This is in the context of a weakened US.

For my own personal biases, what changed for me is watching the US system weaken substantially and be weaponised against its own system. Also, spending more time in Europe and gradually moving my work out of the direct militarisation of China and being able to take a clearer systems perspective of what is actually happening in China. Is it what we thought has been happening in China for the last 20 years? China’s industrial policy stands up to real rigour in terms of what it’s developed and created, independent of what it may or may not have stolen from the US.

What has changed my thinking is really starting to understand the historical context for a lot of what we’re seeing in China. It’s a binary perspective: the US versus China. What I’ve spent a lot of time doing in the last year is looking at smaller strategies in between that also work in unique and interesting ways. I’ve been looking at Pakistan and the evolution of their monetary system, which is fascinating. Perhaps a better way to think about China is vis-à-vis India, not the US. My interest in China has come with this more nuanced perspective: if there is degradation not only to the West but also this binary idea of “China bad, West great,” where in the middle can we start to see interesting context to understand the way China is actually operating today versus how we think it’s been operating for the last 20 years?

Marieke: One of the things you’ve deep-dived into recently, which we found appealing, is how you look at Chinese monetary institutions. As you point out, they are different from Western ones. Can you help us understand how different they are in their construct and why they’re different?

Sinéad: Because I’m coming at this as an outsider, a lot of the assumptions that monetary experts make are things I don’t know. Coming at this from a different lens has allowed me to poke certain assumptions in different ways. This might be obvious to people in your field. What has fascinated me is this idea that in the West, monetary policy and central banking independence equals good, and integration of central banks with the state equals bad. Coming from a different perspective, this was something I understood to be the case in reality. In the West, this is often why we hear that the Chinese economy is unstable because we don’t really know what’s happening—they lie about it, it’s integrated, there’s this political element to it. This is describing the sentiment around how some of this is reported.

My journey through monetary policy in China has shown me this is complete rubbish. The historical lens is interesting here. In the late 70s, you had this command economy in China. In the West, this idea that we have central bank independence is great and it works because we have deep capital markets. You look at the US: the deepest capital markets in the world. These capital markets act as a transmission system for coordination and price signalling. If you go to China in the 70s, where there are no private capital markets, what transmits any of this information from the state or the central bank to coordinating impact? There’s nothing there. Out of necessity, you have this one-party system.

The context in the 70s, as it’s going through this change: you have social issues that were worrying for the political apparatus, and importantly you had no unemployment buffer. Employment goes hand in hand in China with social and political stability. The fear in China around this time is that they are worried about instability from premature markets, that there wasn’t enough stability in their nascent markets.

It’s interesting to think about India. The comparison in the 90s with this mixed economy—India actually does have deep markets during this period, but they’re informal. I want to compare India and China because there is one assumption in the West that both India and China are on a development trajectory that should and will eventually mirror the US and Europe. They’re not. The goal for China, as with India for different reasons and different contexts, is not that eventually when China becomes a good enough economy and political system, it will be independent.

Let’s not forget, central banking independence is a new technology in the West. It’s interesting that we impose these moral, nearly quasi-moral standards on China that we have only taken on ourselves in the West for very specific reasons.

“Politicians wanted to be shielded from hyperinflation”

Nicolas: Would you say the discussion about central bank independence started among economists and then became the norm because of the fiscal situation in the West? At some point, the politicians had no choice but to spend more, even though the deficits were growing. We were in need of a backstop to that, and central bank independence was the answer. Whereas in China, they are not there yet. They might go there, like growing a deficit, but not yet.

Sinéad: I think it’s a mix. There are two different elements: this moral lens and then a structural element—what is the actual goal and what is it trying to fulfil? Why do we think this is a good or bad thing? Structurally, there are obvious reasons. As Western markets liberalised, it became too difficult to coordinate politically. Also, the retribution when there was hyperinflation back to the political class was too big a risk for politicians. They wanted that separation because they wanted to be shielded from the pushback on hyperinflation. The Chinese model is the opposite. They said we want to be able to control it because we think structurally we can, because we control more of the market. Whereas the markets were too autonomous in the West to deal with the complexity of this, and politicians ultimately said, “I don’t know how to do this and I’m going to lose my job. Let’s create some distance. This is someone else’s problem.” Look at what we’re seeing with Jerome Powell at the minute in the US.

This moral lens came from post-Nazi Germany. The underlying assumption there was that a bad economy and hyperinflation led to such social ills that Nazism was the output. There was a moral reason that we should avoid at any cost hyperinflation, to a certain degree inflation, because we do not want to create those social ills that led to this catastrophe. The irony of all of this, which we’ll probably discuss, is that this is exactly where we’ve ended up, just from the other end. We have a tightly controlled economy by the central bank which has led to social ills, and then political rupture comes from that.

China thinks about this in a different way. Part of that is that China’s economy has not liberalised enough. Structurally, it’s different in terms of its fiscal characteristics. But the structure underneath it is so different that it might be able to not have that issue.

“Onshore, offshore, and pressure absorption”

Marieke: I agree. A lot of what you say—we look with our Western eyes towards a culture that’s fundamentally different. Even the sense of self is different when you look at how children are educated, the way you learn the Chinese language. The depths of cultural differences cannot be comprehended, how deep it is. Therefore, this tendency to put our models on something... I really appreciate how you frame the fact that the underlying economy and the needs are different, and also the culture, the social background where people come from is different. There isn’t a right or wrong model. There is a model that works within a certain context, and now we’re starting to comprehend the depths of it.

Maybe double-clicking on something you mentioned in your writings: the Hong Kong role. I also lived in Hong Kong after China. Hong Kong is fascinating. It plays a fascinating role for China. It is onshore, offshore, and has gone through historically different waves. What do you see as the role of Hong Kong today within that? Is it a sustainable arrangement it has with China?

Sinéad: That’s interesting because there’s a Western perspective and then there’s the underlying structure, which is somewhat different. My understanding is there’s this bimodal currency. You have the onshore CNY. The purpose is to create stability. Everything monetary policy in China is about stability—social. In the West, the purpose of central banks is to create inflation stability. The role of the central bank in China is to create social stability, employment stability, fiscal stability, political stability. It is wide-ranging, and thus there are different tools that China has to deal with that. When you think about the Hong Kong model with China, you have the onshore currency. Its role is to create stability. Then you have the offshore CNH, which in my opinion is to provide pressure absorption and buffer. When I think about China, I think about China as being this octopus with multiple tentacles that are going out and doing different things at the same time. Whereas in the West, we seem to be binary: on, off, politically connected or not. China has a hybrid model with everything.

This bimodal system allows China to access global liquidity. If you look at what India is doing, the role of the Reserve Bank of India—their issue was always access to liquidity because they were worried about fiscal instability. China still has a bit of that. They want access to liquidity, but what they do not want is to import this global chaos that comes with that. By which we mean the instability: a butterfly flaps its wings in DC and now you have societal collapse in Beijing. That is what they want to avoid. The weaponisation of the dollar that we’re seeing today can be looked at through the lens of creating instability, or through what I think of as a defence mechanism—defence in the military defence context.

In the West, you have one currency and one market, one price. In the East, you have these various levels. You have the onshore and then the offshore currency. This allows a high-fidelity segmented risk management for China. The risk here is not about the currency between Hong Kong and China. It’s more about the geopolitical aspect and the political. Will Hong Kong’s role change or not? The risk is that Hong Kong needs to exist and operate as it does today for this system to work.

Taking a systems engineering approach to this, we can think about this as transitional or non-transitional when we talk about whether it’s sustainable. I personally believe it is sustainable because this is a non-transitional state for China. It will continue. There is no—China has never stated that its end goal is to have a unified price here. The West’s assumption, however, is that this is the goal because the West assumes that eventually, once its economy develops enough, China will operate in the same way as the West. But China has never said that this is its goal.

Let’s think about what a transitional state does to a system. Let’s say this is in the middle of changing or progressing. The number one thing this will allow is speculation against the state. Think about Polymarket or betting markets at the minute. Any time you have “will it, won’t it develop, will it reach this stated end goal,” you can bet against the state. George Soros knows this, and this is what China absolutely does not want. It does not want huge speculative bets against the state, against the currency. But that’s fine because in China’s mind, this is not a transitional state. This is non-transitional. This is what it is, this is how it is. So there is no point betting against it because you’re probably going to lose. This is a way for China to create some speculation but to have that speculation happen offshore.

When I say it’s a pressure absorber, this difference between the onshore and the offshore currency—if we look at 2015, 2016, when there was massive renminbi depreciation scare, you had this capital outflow, expectations, and growth slowdown. If this was a unified system, which most analysts in the West assume it will eventually become, you would have had this sharp onshore devaluation of the currency. What happens then? Mass panic, capital flight, domestic credit would have tightened immediately, local domestic economic issues, and then eventually political shock. Political shock is the one thing that China is not willing to touch or go near.

What actually happened when you had this dual system was that the offshore currency devalued sharply, but onshore it moved much more slowly. That spread between the two widened, and people were able to speculate on the spread as opposed to the actual onshore currency. China has created this system whereby when there is a shock, it is speculated on the outside on the second-order impact and never on the first-order impact of the currency. This is smart because this pressure has been solved through this price divergence. This is the benefit of a non-transitional state. The West assumes that this is some sort of error and that at some stage it will fix itself. But this is not the way China thinks about it.

Marieke: Fascinating.

“The ability to tolerate instability is what makes it stable”

Nicolas: About the idea of a transition, and you insisted on the importance of stability from a Chinese perspective. Many China experts I talk to say “yes, China cares about stability and delivers stability,” as we are seeing at the moment. But instability still appears when there’s a succession, when a new paramount leader takes over from the previous one and can decide that the whole system will go in a different direction. From the perspective of monetary policy, since you studied the history of the central bank, have you spotted changes of direction when Hu succeeded Jiang and then Xi succeeded Hu?

Sinéad: I don’t want anyone thinking I have studied the history of China’s monetary policy! What I am in the process of doing at the minute is that for India’s central bank, which is fascinating, especially as you go through the partitions. Because of the work I’m doing on Pakistani industrial policy, I have not done this in the more extensive and complex system of China.

What I will say is this: looking at this from a systems structural perspective, the goal of the Chinese system writ large, regardless of who is in charge, is stability. This does not mean they do not tolerate instability. You cannot get rid of instability from a system. We can discuss later when we discuss the economies of the West and East with regards to social ills and politics. But the way China is structurally set up organisationally and through monetary policy allows it to endure instability quite well because it has specific mechanisms where it can take pent-up instability and release it through a mechanism which does not cascade to the rest of the economy.

I have not looked at the specific regime changes of monetary policy through government and leadership changes. But what I can say is the way the system is constructed at the minute, which is independent of the leader, is such that it can and does tolerate instability well. This is probably why you see, unlike in the West, where you don’t touch anything because it’s all going to break—when one Fed chair steps down, another comes in, it’s “don’t touch anything because we don’t know what any of these buttons do”—whereas in China, they do take on slightly more risk because they know structurally the system will hold because it can tolerate instability. We’ll discuss later the social impact this has on the people that live there. But the ability of China to tolerate instability is exactly what makes it stable, paradoxically.

Nicolas: Very interesting.

“Digital money without legitimacy outside the system”

Marieke: Super interesting. I think also the concept of the buffer, the way you described it with Hong Kong in 2015, 2016, is super interesting.

Maybe moving on, or continuing on the topic of China: in Currency of Power, we look a lot at digital currencies and their impact and how they are reshaping systems. There is a lot written about the digital yuan, but it’s often misunderstood. What’s your view on it? Why do you think it’s designed to do what it does?

Sinéad: This is where I have to say you are the expert on this. I have a specific perspective I’m willing to share, but please do not think I spent many weeks and months trying to get to the bottom of all of this. I still feel I don’t particularly understand it well, but I do have a perspective I will share with you.

It’s interesting because in the West, it feels contradictory that China has anything digital. If we think about the cultural perspective of what we think around digital currencies in the West, it’s very different. My own bias: I came to know Bitcoin and digital currencies through when Twitter was still called Twitter. I was on one of the initial small teams building Bluesky when it was before it was a social site, when it was a decentralised information movement platform. So I understood anything digital in this space to equal off the grid or to be something that moved away from legitimacy.

From that lens, which I think is how probably a lot of people in the West have seen Bitcoin as being some scammy off-the-grid thing, thinking, “Oh, why is China involved in all of this?” I think the two things are different. In the West, or at least I have seen a lot of people I know see digital money as this new form of money that is separate from the current forms we have today. We can get into later why people want different forms of money and currency and power and legitimacy. But in the East, and in China, I think it’s a structural thing: we have digital money and it’s good at doing some stuff better than others. The government does not allow it to take on that extra meaning of power or legitimacy. It is a tightly controlled tool for creating faster settlements and modernising an otherwise somewhat archaic financial plumbing system. That is all it is. China has never given it the legitimacy of being about creating power elsewhere.

China has state-controlled banks, capital controls, and absolute political authority. But what it does not have is some public alternative to private payment monopolies. This is important because if you look at China’s perspective on monopolies within the state, especially private sector monopolies, it’s radically different to the US. A digital form of money, especially if you look at the digital renminbi, preserves the state’s access to real-time information without relying on commercial intermediaries. That is important for China. This is the goal of any and all of its monopoly interventions over the last 10 years. They want the technology. As your six-year-old said, “Wow, this is amazing, all this cool technology.” What they will not allow for is legitimacy built outside of the political system. When we think about digital money, we think of legitimacy outside of a current system. In China, it’s very much legitimising the current system by making it better and faster. That is my assumption.

Nicolas: I agree. I’m sensitive to this idea that for a government or a whole system to be legitimate from a citizen’s perspective, it needs to deliver, to be efficient and easy to use. That’s the David Graeber critique of the left: why does the left love bureaucracy so much? Bureaucracy turns the state into an enemy of the people. We should want to get rid of that so people really love interacting with the state. That would be the idea. From what I hear in China, they welcome the technology because it makes the whole system more fluid, more easy to use, more conducive to growth and stability ultimately.

“China leapfrogged the entire thing”

Marieke: Maybe bouncing on that: when I was living in China, literally if you ordered flight tickets, you could order them online but you had to pay in cash. Someone was coming to your door with a paper ticket—we’re not talking that long ago. After that, China totally leapfrogged the whole thing. Out of, we would say, nowhere, you have WeChat and Alipay that started and exploded with a very Chinese custom, Hong Bao, around Chinese New Year. You give physical cash in a red envelope to people. But they embraced those rails because guess what, they’re so much better. They enable the use of technology, but in a way that it’s not outside of state control, it’s still within control. I think there’s been this entire leapfrog that we haven’t had because we’ve had systems that were kind of working and infrastructure that was working a bit better.

Another interesting point I’d love your perspective on: China went through being the core and heart of crypto. Up until 2021, you had some of the best Chinese engineers and developers, Binance and CZ and all those exchanges that were born out of China. A lot of people in the crypto industry were flying to and living in China because it was so open. Then 2021, it’s all blocked, or at least it looks like that. But today, for example, in Bitcoin mining, China is number three. I looked at the data and couldn’t believe it. China is number three in Bitcoin mining. They’re obviously making quite a lot of strides with the digital yuan and other infrastructure they’re building.

How do we make sense of this contradiction? Because in a way, there’s a system, but things are banned, but it’s really embraced, and they’re probably some of the most advanced on it. How do you think about these contradictions?

Sinéad: That’s interesting. Can I piggyback off something you were saying? I want to go back to the legitimacy point because this is somewhat at the heart of this contradiction. A lot of the research I did at MIT around democracy in technology and competitiveness with China—I could summarise probably an 80,000-word report I wrote in one sentence: in China, they want democracy, but they’ll be happy if you give them Disney. It is this idea that if you keep people happy, you can create enough legitimacy for any system to work.

When I recently went back and read some of the work I did at MIT, I couldn’t believe it. Either I was really stupid back then, or—I’m happy to say where I look back and think, “Probably shouldn’t have said that”—but I think what has changed more is not me, it’s the system in the US. Back in 2019, when I was at MIT writing this, it was fine to be at MIT, champagne socialists looking at China and thinking, “Oh, they want democracy, but they have Disney instead. Let’s look at these two systems.”

If we compare, what are the negatives of China? You don’t have democracy, you don’t have these values, human rights issues, surveillance, you can’t say what you think. Guess what? In the West, we have surveillance that is unparalleled, but it’s surveillance that hinders, not helps us. It is a one-way mechanism for the state or private monopolies to gather data on you to give you nothing back. At least in China, you get services. You have human rights abuses in the West. This has undermined legitimacy in the West more than any monetary policy ever has. It’s a toss-up with human rights abuses and a lack of legitimacy around global legal systems that the West has created and rolled back from.

All of the negatives that we attributed to China, and democracy—I’m sorry, but if you look at what’s happening in the US at the minute, question mark. This erosion of legitimacy in the West, but there is nothing keeping people happy in the West. We don’t have housing, we don’t have healthcare, we don’t have infrastructure, we don’t have education. Our quality of life is drastically falling. People are poor, inequality is higher. These things are eroding the legitimacy of the system in the West. At least if you were to tolerate the bad things in China, you have education, housing, infrastructure, all the things your six-year-old said were fabulous.

This is a contradiction in itself. In China, this model shows us explicitly people will absorb the negatives if there’s a perceived trade-off that benefits them. In the West, we’re experiencing in real time there’s no trade-off for us anymore. I am not willing to lose the democratic values of the West and have no healthcare and no housing. If we’re going to be undemocratic, I’m moving to China where at least I’ll have an education. This is a structural contradiction we used to look at with China and say, “Oh, but they’re watching Disney, they’re too preoccupied to know they don’t have democracy.” Neither do we, and now we don’t have Disney either. This is why the perception of the Chinese model is changing.

Then this technology idea is fascinating. China is built structurally in an engineering way. Dan Wang’s big book this year or last year—anyone who knows anything about China could probably have written a similar book. These are well-known ideas that China is good at engineering. They have great engineers. Why is that? Because China itself, structurally, is built like an engineered system. The lawyers think like engineers because of how the structure works. That is why it’s so easy for me as an engineer to look at China and say, “Oh yes, this model works perfectly. If I were to design a system, it would probably look like this.”

This structural framework that engineers rely on exists in the lawyers and the teachers and the bureaucrats because this is how their system is. This is why there’s such enormous engineering talent coming out of China—people have this engineering mindset anyway. In the West, we have to train it into you, and in the East, it’s prevalent because of the system. On top of the fact that you have these great engineers in China, they’re going to go where the money is. The closer the capital, the more money you make. People are human, whether they’re Chinese or American—they want to better their own position relative to wealth accumulation. So it is not surprising that the top crypto engineers are Chinese.

What is surprising to people is the extent to which the state of China allows this expertise development in what are often seen as nefarious use cases. But it’s not surprising when China is not binary. It’s not “get rid of everything bad.” A good analogy: when I was younger, I’m from Ireland, people when I was younger would have started drinking and going to pubs when they were 15 or 16, which is ridiculously young. But I could always tell when I went to college and met people at 19 or 20 who had never been allowed out of the house or had a drink before they got to university—they went totally crazy when you experience alcohol for the first time at an older age and you’re not used to having a drink here with your parents at dinner. The French system does this perfectly.

This is how I think about the Chinese government dealing with Bitcoin. They allow a certain amount of leakage into the system because they know you cannot have total—firstly, you cannot completely control underground activity. It’s like another way to look at it: we’ve covered alcohol, drugs. You talk to the DEA—I don’t have any friends in the DEA, but their strategy is, we know who the local drug dealers are, we let them do what they’re doing as long as we can watch them. It is a safer way to do that than to drive those people underground where we really cannot see them. This is a sensible contradiction that the Chinese government takes with these digital currencies. We know we’re not going to stop these ultra-smart people. We also want to be able to track the enormous wealth being created, and we don’t want that wealth to sit outside of our system. But the minute the system becomes too strong, then it’s time for everyone to get out of the sandbox.

Nicolas: Like happened to Jack Ma.

Sinéad: He was too successful for the model, I think.

Marieke: But I wonder on that—this is pure speculation—we might see a reversal of some of these people that were outside starting to come back in. I was reading recently there’s Ai Weiwei visiting back his own country.

Sinéad: I was talking about this.

Marieke: When you look, some of the biggest players are still made by Chinese engineers. Some of them might be in Singapore, maybe slightly outside, but I think are going to get closer because it is embraced and there is a comprehension. So I think it’s going to be interesting.

Sinéad: What do you think that is?

Marieke: For all the reasons you mentioned. I think you framed it well. If you look at the negatives of China, which are democracy and surveillance, and if you look at the negatives in the West, which we don’t think we have but actually have in an unsaid thing, then maybe I’m actually better off. Again, I’m going to quote my six-year-old again because of the way he saw it: in China, when you go in the street now, there are cameras everywhere, but you see the cameras, they’re everywhere.

Sinéad: Yes.

Marieke: I pointed it to my son. I said, “Look, everything is there.” His reaction was, “Well then we’re safe, we know we’re safe.” I was like, “Oh, that’s an interesting reaction.” Then I told him, “But would you not rather have a place where you don’t have that?” He’s like, “Well, but still, someone is going to see what I’m posting, what I’m doing.” So he was like, “At least I know it’s here and I can see it and I know the rules of the game, and therefore it’s keeping—” Again, it’s a naive, maybe naive perspective, but when you said what you expressed, I was like, yeah, in China you can see it. London is probably one of the places most surveilled, but you don’t see it. So in a way, I think all the trade-offs are gone and we think we have them, but it’s a mirage. I don’t know, it will be interesting to see who goes back and who doesn’t and what alignments happen.

Sinéad: Totally. I think at the minute in the West, because we’re living through this transition, we still have this old narrative of “we have democracy, we have liberal values”—we don’t. That discontinuity between the lived experience and the narrative causes an enormous amount of anxiety, at least for me, but in general with people. In China, it’s straightforward: you do this and you’ll be expelled, do this and you’ll be fine. Here’s what we’re willing to tolerate and here’s what we’re not. If you cross that line, we’re going to have a discussion about it. That gives you—the basic premise for an economy operating in the first place are legal boundaries.

“US citizens flocking to China to do engineering”

This is the difficulty now in the West. If you have a business, business thrives on top of “here’s a legal framework, here’s what you can do, here’s what you cannot do.” In the West, I mean, there is no such thing as international law. I’m sorry, but the people still pretending this exists—for some people it is used ad hoc if and when it is chosen to be used. That is the equivalent of not existing at all. At least in China, you can develop an understanding of the trade-offs and make a decision about whether you’re willing to accept them.

Interestingly, what we’re going to see is this merging. When you’re talking about people coming back into the fold in China, I think China is realising there’s a massive opportunity. I want to talk about some of the talent outside of China moving as China—you go to MIT, you go to Harvard, Cambridge, they’re right next to each other. You go to Harvard Square or by MIT—all of the buildings around there are biotech. The industry is biotech. A friend of mine just finished a PhD, spent seven years at the hospitals at Harvard doing her biotech PhD. There are no jobs. No jobs. If you’re MIT or Harvard coming out of biotech, the companies aren’t hiring. The industry has moved to China.

A lot of engineering talent I know is moving to China because not only are the salaries they’re offering better, but you don’t have the stasis you have in the West. If you’re an engineer, you want to build something. Sure, you want money while you do it, but you want to build something, you want to get something done. If you work in academia in the US now, it’s not a great time to be in academia, but there’s no ability to get something done. In China, they’re like, “Yeah, here’s a lab, here’s people, build whatever you want.” That is a really exciting proposition.

Nicolas: Even US citizens, you mean? Or Chinese nationals?

Sinéad: US citizens are flocking to China to do engineering in China. This was unimaginable even a few years ago. Back then, I was advising on MIT’s China policy because there was a massive problem with infiltration of the CCP and a transfer of information from MIT to China. But now it’s not secretive because people just go, they bring their knowledge with them. They don’t want to stay in the US.

There is this liberalisation of values and academics from the US into China. I think China has realised here is a unique moment in which we can—China has a lot of flexibility in what it’s willing to do and how quickly it can move certain values in certain sectors in favour of gaining perceived advantage. It’s absolutely doing that right now. Come to China, work at this university, we’ll give you a million dollars a year tax-free and build whatever you want, hire whoever you want. Here’s a lab. And they’re doing that.

“China can decide where and how slowdown happens”

Nicolas: We want to talk about the dollar and whether China poses a challenge to it. But before that, because you alluded to it: we have many echoes from China at the moment that Chinese society is not doing that well. There’s rising unemployment, people have difficulties making ends meet. Not that they’re angry towards the government, but the contrast between China crushing it as an export powerhouse and the actual state of the middle class in China seems to be widening. Have you studied anything on that aspect? Because you alluded to social ease and whether the situation is worse in the West compared to China, but maybe China is worsening as well.

Sinéad: The use of the words “worse” and “worsening” is interesting, and I’ll get back to that. This has been—I think quite a few years ago now when I was at Harvard, I was working on the strategy for a large multinational luxury goods company. Like a lot of these companies, their growth strategy could be put into one word: China. This idea of this growing middle class was the tide that lifted all US boats. This is hilarious because whether you were Disney, whether you were LVMH, it really didn’t matter. We have this neverending supply of middle-class people in China who are going to want to experience this handbag for the first time. It was funny working with these boards and these executives saying, “Hang on a second, you realise Mickey Mouse with the American flag isn’t going to be that popular with the CCP. They don’t quite have this distance between the private sector and the government.” There was this complete unknown around how do you actually operate in China.

A lot of them saying, “Wait, we’re going to have to onshore manufacturing in China if we want to sell LVMH in China?” And I said, “Yeah, you’re not going to be able to manufacture in India, slap an American logo on it, and take advantage of the middle class in China.” But the big question I had at that time was: is this growth sustainable? For how long will this middle class just be this nameless, faceless consumer sector that is going to absorb all of these products? I think this is a big question at the minute. The economic slowdown in China is certainly one that is top of discussion around many global talking points.

But I guess the question around “worse” or “worsening”—for sure, we are going through a global recession. It’s become increasingly difficult to understand the meaning of the word recession because the economy is so fragmented and polarised in different ways. But if you look at basic sentiment and basic data, people no longer have—anecdotally, my phone rings multiple times a week. Someone, anyone from a college graduate to an executive who’s been at a FTSE 30 company for 20 years, saying, “I’m unemployed.” We can keep saying it’s ChatGPT for the next 10 years. I don’t think it is. China is absolutely experiencing this too.

I think the difference between China and the West is that China has a much stronger ability to control where it wants to see economic slowdown and through which social class it wants to do that. If you’re the CCP and you’re saying someone has to take a hit here—we can discuss this later when we get into transitional states between a well-functioning and high-growing economy and one that’s not. There are winners and losers. In the US and in the West, we typically say, “Well, someone wins and someone loses. Let’s hope it’s not me.” In China, they can—think about the octopus and the tentacles—they can say it’s going to be this class and it’s going to be this sector and it’s going to be this region because this is what’s going to create wider stability, and we’re going to ring-fence it here.

Potentially they say, “Okay, the middle class, it sucks that you don’t get to buy 10 Louis Vuittons this year instead of two. But also we need that bottom 10% to move up, so you’re going to slow down, and okay, you guys can keep going.” They have an incredible ability to be able to do that. You cannot—it’s like instability—you cannot avoid it. There is global slowdown. Is it worse than the West? I don’t know. Who knows? Everyone lies about the numbers now, even the West. But what I will say is China has the ability to decide where and how it happens. That is really interesting.

“Power is zero-sum in the West”

Nicolas: Should we say a word about the dollar before we move to the other half of the interview? We were wondering what your views are on China potentially challenging the dollar as a global reserve currency.

Sinéad: This is usually the thing people want to talk about. In the world I live in, it’s weaponisation. Outside of the world you live in, which is nuanced and much more exacting and precise, the world I live in is “Oh no, China, are they going to militarily invade Taiwan? And is the dollar going to disappear?” I was giving a defence economic seminar last year for a week for PhD students, and the only question they had was, “Yeah, but the dollar is dead. China is taking over.” And I said, “Well, hang on a second, don’t believe everything you read on Twitter.”

It’s interesting because I think about conflict and this weaponisation of anything and competitiveness in this American way. You can hear the Air Force One song. It is true absolute power. This is not the way that China thinks about it. There’s this idea that China is trying to overtake the US, and I don’t think it is. There is this multi-rail system, of course, in that there is now a competitor potentially to the US dollar. But let’s look at the way this conversation is framed.

In the US, we assume that power is zero-sum. You win or you lose, the US is on the top or it’s been defeated by China. Where does this come from? This idea contextually comes because the West has its systems and structures that have come online and been developed through—not to be one of those totally woke people, but through a very imperialistic system of we take over this country or this capability. Power is positional. This gave rise to an entire academic thinking. If you look at Graham Allison at Harvard Kennedy School and this idea of great power competition, there will be one winner and one loser, or one winner and many losers, but never many winners.

I was lucky to work with Graham when I was at Harvard. But it was enlightening the way that specific doctrine has been moved into military strategy, into economic strategy. Any alternative is a direct threat.

“Hide your strength while you bide your time”

Nicolas: To this idea of hegemony also, maybe because all those people’s thinking was shaped by the Cold War and the actual confrontation with a very different system.

Sinéad: That system is very different to the Eastern system. China does not have this Cold War attitude because China never developed its mechanisms externally to itself. China developed internally. When you develop internally, you build your system around existing constraints and fragmentation. Those are the real threats to you: constraints and fragmentation. Not that you need to overtake and absorb an entire other entity externally. This has created an entirely different way in which the two think about the nature of combat.

China does not do public escalation, and it absolutely does not do ideological confrontation. The easiest way to see that people don’t understand this is through the narrative around tariff wars. Recently, I have a friend who, very much into military strategy, continually seemed to misunderstand what China would do next and would say, “Oh, this is it. They’ve been waiting 500 years, and now they can finally slap on the tariffs and take over Taiwan.” And I said, “This is never going to happen. That is not how China—China avoids at any cost confrontation.” We have in the White House the most confrontational person in the world.

There’s this idea in China—it’s called shi—we don’t really have the phrase in English. It’s power as configuration, not force, which is interesting. Going back to how China is an engineering state, its power is in the structure, not in what it does, but how it exists. China’s advantage and its positioning comes from this. If you look at military doctrine, not to take us too far away from the discussion of monetary policy and this idea of de-dollarisation, there’s a reason why I think China is not trying to directly take over the dollar, apart from the fact that China understands this is an expensive and difficult thing for it to do right now.

You had Mao in the 50s to the 70s, and through his military doctrine, we had this idea that endurance is your main tool. If you had any military tool, it is that of endurance and time. This is where we see time as a weapon. Although this had been for centuries embedded into the culture, this came out as a specific doctrine for 20 to 30 years. Time is your friend here, and you would avoid any head-on victory. This idea that as your enemy advances, you retreat, and so you make them take all these unnecessary steps, and you use time to wear out your friend, which is potentially something we’re seeing right now.

Then you had the Deng Xiaoping era from the 70s to 90s, and you see this addition on top of the time being: hide your strength while you bide your time. This is fantastic. Hide your capabilities and build quietly. Keep building them. You don’t necessarily need to distract them, but don’t talk about it in the same way that you don’t have this massive PR campaign for your new naval warfare ship.

Then it brings us to today’s PLA doctrine, the People’s Liberation Army military doctrine right now, which is that you’re looking for a system-wide destruction of the enemy. You are not trying to decapitate the enemy. What this means is you want to degrade all of their coordination and you want to neutralise their ability to create networks. We’re seeing this through Belt and Road—the perfect example. You want to attack their dependency, but you never do head-to-head combat. You’re not trying to cut the head off the snake, you just want to make the snake powerless.

Which brings us back to this multi-rail currency. China is not trying to take over as a dominant currency. China’s fear is that it imports instability. This is ultimately the state fear because instability equals political instability. So they are trying to reduce its exposure to instability. It is creating, I guess, a parallel system. If you were to take away any military understanding or combat, it is trying to create additional points of redundancy through which it will not rely on US and Western instability. But at a deeper level, if you were trying to assume that there was anything adversarial going on with the currency, you would assume they are not trying to attack and overtake the currency of the US, but they are certainly building long-standing alternatives which may, in the future—we can get into energy and all the rest—which may actually become much more prevalent.

“We are addicted to quantitative easing”

Nicolas: Thanks so much. That’s very enlightening. We will move now to the second part of our discussion, which is about your other series called How To Fix A Crackhead Economy Addicted To Free Money.

Sinéad: Yes.

Nicolas: Maybe the best way to introduce this is for you to explain the difference between coordination and redistribution. Then we’ll move to discussing quantitative easing and its effect on the economy since 2008, and how to some extent it explains the whole crypto political movement, which is our focus here.

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On January 27, 2026, leading voices from central banking, finance, and policy converged in Frankfurt for a crucial conversation about the future of money.

• The 14th ILF Conference, co-chaired by Andreas Dombret (former German Central Banker, Chair of N26) and Patrick Kenadjian (Adjunct Professor at Institute for Law and Finance, Goethe University) brought together an impressive list of heavyweights including Barry Eichengreen from UC Berkeley, Lucrezia Reichlin from London Business School, Lorenzo Bini Smaghi from Société Générale, Fritzi Köhler-Geib from Deutsche Bundesbank, Jean-Pierre Landau former Banque de France, Klaas Knot former Dutch Central Bank, Thomas Vlassopoulos from the ECB, Hyun Song Shin and Gaston Gelos from BIS, members of the European Parliament and the European Commission, and executives from major financial institutions such as Martina Weimert.

The day’s mission: to debate stablecoins, tokenised deposits and CBDCs, and Europe’s position and path forward. I attended the conference and paid close attention to what was said during the whole day, and interacted with many participants in one to one. Here’s a glimpse of what I took away from it.

The American Strategy: Stablecoins as a Tool for Dollar Dominance

The conference opened with Berkeley economist Barry Eichengreen laying bare the geopolitical reality: the GENIUS Act in the US represents a deliberate strategy to solidify dollar dominance through stablecoins. As Eichengreen noted, American policymakers have been remarkably explicit about their intentions to use stablecoins to reaffirm dollar supremacy on the global stage.

This framing set the stage for a day of discussions that revealed both clarity about the challenge and considerable uncertainty about the appropriate response. Lorenzo Bini Smaghi reinforced this view, observing that stablecoins now form part of the U.S. National Security Agenda. They are not only a complement to Treasury demand, but (as the Fed’s Stephen Miran made clear a few months ago) a weapon for further dollarization and a tool to increase dollar adoption in the emerging tokenized economy.

Europe’s Prisoner Dilemma: Five Possible Responses

Eichengreen outlined five potential European responses, each with significant drawbacks:

• Do nothing, assuming stablecoins won’t enter the mainstream. This was deemed highly risky. While currency substitution isn’t currently problematic due to low inflation, it could rapidly become an issue if conditions change.

• Ban dollar stablecoins, following China’s approach. However, as countries like Bangladesh, Indonesia, and Vietnam have discovered, users find workarounds through VPNs and other means, making enforcement impractical.

• Issue competing euro stablecoins, like Japan, Hong Kong, and Singapore. The problem: Europe has significant catching up to do and would likely move too slowly to be effective.

• Deploy a competing retail CBDC. While China’s e-CNY and initiatives like mBridge exist, these solutions remain small-scale and not yet scalable. mBridge, for instance, has processed only 200 transactions totaling $1.4 billion, compared to SWIFT’s 45 million transactions and $5 trillion daily.

• Link faster payment systems across borders. These are typically not blockchain-based, work only within specific regions, and take considerable time to implement, around three years.

I found Eichengreen’s recommendation particularly wise: Build the ecosystem and continue engaging on multiple fronts, a pragmatic acknowledgment that no single silver bullet exists.

The Digital Euro Debate: A Chorus of Skepticism

Perhaps the most striking theme throughout the conference was the near-universal criticism of the European Central Bank’s focus on a retail digital euro. Speaker after speaker questioned whether this represented a strategic misstep that was consuming resources and attention that should be directed elsewhere.

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Bitcoin and cryptocurrencies were born to offer freedom from government control—money that can’t be frozen, seized, or sanctioned. A financial system where code, not politics, makes the rules. A decentralized system that no one controls.

In the contest between financial sovereignty and American power, decentralization might be winning some battles, but it’s losing the war in unexpected ways. Every nation locked out of the dollar system is now building alternatives—digital yuan, BRICS payment networks, Bitcoin reserves, euro stablecoins.

But as they escape one set of choke points, are they walking straight into new ones?

The architecture of control hasn’t disappeared. It’s just moved—from central banks to mining pools, from SWIFT to stablecoin issuers, from correspondent banks to cloud service providers. And almost every layer of this “decentralized” infrastructure might lead back to the same place: American jurisdiction, American companies, American enforcement.

Perhaps true sovereignty was always an illusion. Perhaps every financial system—no matter how it’s designed—eventually becomes someone’s weapon.

How the Dollar Became a Weapon

America built the dollar’s dominance through deliberate action—with support from its allies.

The architecture began at Bretton Woods in 1944, where the dollar was pegged to gold and every other currency pegged to the dollar. When that system became unsustainable, Nixon severed the gold link in 1971, transforming the dollar into pure fiat—backed by nothing but American economic might and military power.

Then came the masterstroke in 1974: the petrodollar system. By ensuring that Saudi Arabia—and through it, OPEC—would price oil exclusively in dollars, the US guaranteed permanent global demand for its currency. Every nation needed dollars not by choice but by necessity. Want to buy oil? You need dollars. Want to build foreign exchange reserves? Dollars are the deepest, most liquid market. Want to trade internationally? The correspondent banking system runs on dollars.

This system was designed, put to use, and later turned into a tool of coercion. Sanctions evolved in tandem with this dollar infrastructure. Early sanctions were blunt: trade embargos, asset freezes. Cuba, 1960. Iran, in waves since 1979. But as global finance digitized and centralized, sanctions became surgical. SWIFT, created in 1973 as a cooperative messaging system for banks, became the enforcement mechanism. When the US demanded Iranian banks be cut from SWIFT in 2012, the ‘neutral’ cooperative complied. When Russia invaded Ukraine, SWIFT disconnected Russian banks within days.

Banks didn’t need to be ordered to over-comply—the threat of being cut from dollar clearing was enough. Lose access to US correspondent banks, and you’re effectively exiled from global finance. So banks freeze accounts preemptively, exit entire markets, implement compliance regimes that go far beyond legal requirements. Fear is the enforcement mechanism.

The global financial infrastructure, exemplified by the experiences of Cuba, Iran, Venezuela, and Russia, and potentially others, is fundamentally American infrastructure with international reach.

When a growing number of nations are cut off—and more are threatened daily—from this system, it raises a critical question: is it genuinely neutral and for all to use, or is it simply an instrument of hegemony? We live in a world when no one is out of reach from sanctions. Imagine if Visa and MasterCard were switched off.

The Unintended (but Predictable) Consequence

Dollar weaponization was meant to enforce compliance. Its unintended consequence is forcing entire nations to build alternatives—sometimes successfully. Countries locked out of traditional finance are turning to building new rails and using new assets as a lifeline, often in the form of blockchain and cryptocurrencies, often with widely different approaches and consequences.

Venezuela’s USDT economy emerged as millions of citizens, crushed by hyperinflation, fled the bolivar for Tether’s dollar-pegged stablecoin. Binance operated freely in the country, and USDT became the de facto currency of daily life—remittances, savings, commerce. For ordinary Venezuelans, it was liberation from monetary chaos.

Until it wasn’t. In 2024, Tether froze 32 wallets associated with the Venezuelan government at the request of US authorities, later expanding to 41 wallets. Tether’s CEO was unambiguous: the company works with American law enforcement and complies with sanctions. The Venezuelan people could use USDT, but their government could not. The rails they thought were anonymous were, in fact, fully supervised.

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Why discuss energy in a newsletter about currency and power? Because the three concepts have become inseparable. Proof-of-work mining converts electricity into cryptographic security. In other words, miners burn energy to validate transactions and protect the network, and the more energy invested, the more secure the network becomes. Elon Musk himself recently stated that “Bitcoin is energy”, a framing which highlights how Bitcoin essentially stores energy in digital form, transforming electricity into a portable, verifiable asset. And so bringing Bitcoin into the energy discussion matters because Bitcoin’s consumption affects energy markets, influences renewable energy investments, and raises questions about tradeoffs between security and sustainability. Energy defines what Bitcoin fundamentally is.

Understanding this energy-Bitcoin relationship becomes urgent as our appetite for energy seems infinite and is about to explode. AI datacenters need constant, large, uninterruptible power near population centers. A single training run for a large language model can consume 50 GWh—enough to power 5,000 homes for a year. These facilities require 100% uptime; even millisecond interruptions can corrupt weeks of computation worth millions of dollars.

The location requirements are inflexible. You might think datacentres are like factories or warehouses, able to move to cheap land far from cities. In reality, AI datacentres must sit near population centres for low-latency inference, near universities to hire staff, and near existing internet links for bandwidth. They simply cannot move to remote areas with cheap power like older industries. As a result, they put heavy pressure on the grid at peak times and push up costs for everyone. When an afternoon heatwave strains the grid, AI datacentres still draw their full load.

As a result, the whole game has moved to another level in terms of energy use and strain on the power grid. Microsoft has struck a deal with the Three Mile Island nuclear plant. Google plans small modular reactors. Amazon is building a nuclear campus. Tech firms now hunt for gigawatts of power that never switch off. By 2030, AI data centres could use 1,000 TWh a year worldwide, about the same as Japan’s total electricity use. As Azeem Azhar recently (half-)joked, you may soon not be able to run a software company “without owning your own nuclear power station”.

And so, here’s the thing: in an age where AI is here to stay and even contributes to strategic superiority, countries urgently need a massive, scalable energy infrastructure. The question is: how do we design and operate it sustainably?

The Current Two-Body System

For decades, many grids have relied on a relatively stable system: constant baseload power from sources like nuclear, coal, or hydro, while renewables, along with flexible gas and hydro, handle variable demand. This balance, while complex, has remained manageable. Grid operators can model it, predict it, and optimize it.

Nuclear plants, in particular, run continuously at 90% capacity. Meanwhile, solar and wind fill demand peaks when available. The system works within tight constraints:

• Nuclear struggles for profitability during low-demand periods

• Excess renewable generation gets curtailed—simply wasted—when supply exceeds demand

• Renewables face financing limits because overbuilding means more curtailment

Like Newton’s two-body problem in physics, this system is predictable but limited. It cannot scale to meet our exponential energy needs without fundamental change.

Bitcoin: The Third Body That Changes Everything

Bitcoin mining shatters this equilibrium in precisely the way a third planet disrupts a stable binary orbit. Our thesis is that it will eventually become the economic stabilizer that makes massive clean energy deployment viable.

Bitcoin mining consumes 170-198 TWh annually, performing 1.2 sextillion calculations every second. This energy creates thermodynamic truth. You cannot fake the kilowatt-hours required to mine Bitcoin. As a result, Bitcoin is the rare unforgeable asset in an era of deepfakes and unlimited monetary expansion.

But here’s the critical difference: Bitcoin miners thrive on the energy nobody else wants—stranded gas in North Dakota, curtailed solar in California, excess hydro in Quebec. Unlike AI datacenters that demand prime grid locations and constant power, Bitcoin miners are perfectly happy to set up anywhere power is cheap and unused. They can consume anywhere from zero to hundreds of megawatts, adjusting consumption in seconds. When the grid needs power for air conditioning during a heatwave, miners can shut off instantly—which AI data centres cannot, because they must maintain continuous service.

This flexibility monetizes energy that would otherwise be wasted, creating an economic floor for electricity prices:

• Nuclear plants gain a buyer for off-peak power, improving economics. Reactors can continue running at full capacity at night, earning revenue from power that would otherwise have limited demand.

• Renewable developers can overbuild, knowing excess capacity has value. Solar and wind farms can generate beyond immediate demand and still be profitable, rather than curtailing output.

• Grid operators gain a massive demand-response tool that actually helps rather than hinders grid stability. Unlike uncoordinated or slow-acting demand-response programs that can create swings and stress the grid, miners can instantly adjust load in sync with grid needs.

Texas already proves the model: miners monetize West Texas wind power that would otherwise be curtailed, then power down during heat waves to free capacity for air conditioning. In 2023, Texas Bitcoin miners freed up 2,000 MW during critical grid moments—equivalent to powering 400,000 homes when most needed.

The Strategic Imperative

The strategic importance becomes clear when examining global positioning. China banned Bitcoin mining in 2021, yet Chinese miners still control 14.1% of global hashrate—145 EH (exahashes) of computational power humming away in secret facilities. Why would China risk undermining its own ban? Because, as it’s building the world’s first Electrostate, it recognizes that mastering this energy three-body problem determines who controls the infrastructure of the future.

The US dominates with 37.84% of global hashrate. Russia views its 160 EH/s as sanctions-proof wealth generation. Meanwhile, Europe maintains just 13.37% while desperately courting AI datacenters that will consume five times more uninterruptible power.

Countries are already implementing this strategy:

• Zambia uses excess hydroelectric capacity to mine Bitcoin, subsidizing domestic energy costs while building infrastructure for future AI datacenters. The revenue from mining helps fund grid improvements that will eventually support more demanding applications.

• Bhutan transforms Himalayan hydropower into digital reserves. The country has built a sovereign Bitcoin treasury by monetising seasonal water flows that previously had limited economic value beyond domestic consumption.

• Hybrid datacenters switch between mining Bitcoin when energy is cheap and running AI when demand spikes. This dual-use model allows operators to maintain profitability across different market conditions whilst providing grid operators with predictable, controllable load.

The New Equilibrium

Adding Bitcoin as the third body expands what’s possible. Like gravitational Lagrange points where three celestial bodies find perfect balance, the energy three-body problem creates its own stability points:

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Venezuela’s economic trajectory from oil powerhouse to hyperinflationary basket case spans four decades. The country first experienced double-digit inflation in 1983, but the real collapse came under now-toppled leader Nicolás Maduro. By 2016, Venezuela officially entered hyperinflation. In 2018, annual inflation reached somewhere between 130,000% and 1,000,000%, depending on whose estimates you believed. Even after moderation, inflation hit almost 550% by late 2025.

The US declared Venezuela a national security threat in 2015 and progressively tightened the noose. Financial sanctions in 2017 restricted government access to debt markets. The hammer fell in 2019 with full sanctions on the state-owned oil and natural gas company, PDVSA, as well as the Central Bank, severing Venezuela from SWIFT and traditional banking. By May 2025, renewed sectoral sanctions further complicated oil exports. Venezuela was economically isolated from the dollar-based global financial system.

The Petro: A Sovereign Cryptocurrency Disaster

In February 2018, the Maduro government launched the Petro (PTR)—marketed as the world’s first sovereign cryptocurrency. The timing was no coincidence. Facing financial blockade, Venezuela needed a sanctions-evasion mechanism that could function outside US-controlled banking infrastructure. It took little time for the US to take action: in March 2018, the US prohibited American citizens and entities from transacting in Petros.

The Petro was supposedly backed by 5.3 billion barrels of oil from the Ayacucho region, later expanded to include gold, iron, and diamonds. The government mandated its use for passport fees, pensions, and public sector bonuses, attempting to establish it as a parallel currency to the bolívar. At $60 per token (set by presidential decree rather than market forces), it promised to raise billions in hard currency.

The project failed spectacularly. Unlike Bitcoin or other decentralized cryptocurrencies, the Petro was a centralized database controlled entirely by the Venezuelan government. The state could arbitrarily change its value, making it worthless as a store of value. The technical infrastructure was abysmal—the “Fatherland Wallet” rarely worked, transaction records were inconsistent or missing, and merchants couldn’t process payments.

But the final nail came from within: a March 2023 corruption scandal revealed that officials at SUNACRIP (the national crypto regulator) had diverted billions in oil revenue through crypto channels into private accounts. The arrests, paralysis of the regulator, and quiet termination of the Petro in January 2024 marked the end of Venezuela’s sovereign crypto experiment.

The Unintended Proof of Concept

While the Petro experiment spectacularly failed, Venezuela inadvertently proved something crucial: you can run a national economy on cryptocurrency, including to bypass sanctions evasion. The infrastructure developed for the Petro—crypto wallets, exchange platforms, merchant payment systems—didn’t disappear. It just shifted to a different token.

By then, Venezuelan citizens, desperate to protect savings from hyperinflation, had already discovered Tether (USDT). Known locally as “Binance dollars,” because of its prevalence and advantageous rate in comparison to the official rate, USDT became the de facto currency for daily survival. By late 2025, major supermarket chains accepted crypto payments, with projections that 10% of grocery transactions would be in cryptocurrency by 2026. Over 38% of Venezuelan crypto activity is driven through peer-to-peer exchanges, bypassing the traditional banking system entirely.

Businesses adopted USDT to preserve working capital and pay salaries without instant devaluation. The government, recognizing reality, pivoted from fighting this trend to embracing it. By 2024, PDVSA required spot oil exports to be prepaid in USDT to bypass frozen foreign bank accounts. A rumored but unverifiable estimated 80% of Venezuela’s oil export revenue—approximately $12 billion annually—apparently now settles in USDT. The state even authorized banks to sell USDT to private companies to improve liquidity.

The $60 Billion Shadow Reserve

Beyond the grassroots adoption of USDT, evidence has emerged of a much more ambitious state-level strategy. Reports from investigative outlets like Whale Hunting suggest that while the Venezuelan public was pivoting to stablecoins, the regime was secretly constructing what many crypto-enthusiasts consider the ‘holy grail’ of monetary policy: a domestic economy running on stablecoins for daily trade, backed by a massive, strategic Bitcoin reserve.

According to investigative journalist Bradley Hope, co-author of famed Billion Dollar Whale, and Clara Preve Durrieu, the architect of this system, Alex Saab, alongside now-purged officials like Tareck El Aissami, allegedly oversaw the systematic conversion of Venezuelan gold into Bitcoin through intermediaries in Turkey and the UAE. While official records at the Central Bank remained dismal, these ‘shadow reserves’ are estimated to be as high as $60B—potentially making the Venezuelan state one of the largest Bitcoin holders on Earth.

If true, this configuration represents a sophisticated evolution of the ‘petro-state.’ By late 2025, Venezuela had effectively implemented a fully functioning dual-layer crypto economy: USDT functioned as the liquid, stable medium of exchange for the streets and oil settlements, while a massive Bitcoin stash served as the censorship-resistant ‘digital gold’ backing the regime’s longevity. It was the very setup the Petro failed to be, achieved through the tools the state once tried to ban.

Ironically, while the regime (allegedly) hoarded Bitcoin to insulate its own reserves, it was simultaneously building the digital infrastructure the Venezuelan public would eventually use to re-adopt the dollar. By forcing millions of citizens into the state’s crypto-wallet system, Maduro and his goons unwittingly lowered the barrier for the very currency they were trying to exclude.

The Dollar’s Accidental Victory

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A few months ago, in October 2025, we were interviewed by Martin Lapouille for L’ADN, a highly regarded French media outlet and consultancy that focuses on social, cultural, and technological transformations and emerging trends.

This was our first “two-sided” interview, and we found it extremely stimulating and enriching. We wanted to translate it and share it with you. As you’ll see, our views often complement each other, and we continuously build on one another’s ideas. Our thesis emerges from these dialogues and intellectual exchanges, and we are very grateful to L’ADN for the opportunity.

Following the interview, L’ADN published an article based on it (in French only, sorry!) and invited us to be keynote speakers at their event on 21 January, La Journée des Tendances (The Day of Trends). If you are in Paris, join us!

“The first proven large-scale use case”

L’ADN: To begin with, I wanted to ask you what led you both to launch your newsletter, Euro Stable Watch [now rebranded Currency of Power], dedicated to stablecoins, which is a somewhat niche topic.

Nicolas: Until recently I got interested in cryptocurrencies only about once every two years, just to check in and see what was going on. Apart from the whole FTX scandal, the last time I took a real interest in the topic was when Facebook launched Libra, which was a kind of precursor to the decentralised payment solutions that are now starting to take off, and which ended quite badly. It flopped. The team tried to revive the project with a new name (Diem), and then finally, everything stopped. The entire team left, especially the person in charge, David Marcus, with a lot of bitterness and a desire for revenge against the regulators. In Diem’s team opinion, regulators had prevented them from implementing it all.

After that I stopped paying attention to the space until the start of last year when I began discussing the topic with Marieke—the person I always turn to for expertise in this area. She explained a little bit about what was going on, what was bubbling under the surface. I then suggested doing a long, wide-ranging interview with her about the current state of cryptocurrencies for my newsletter, Drift Signal. In the interview, she pointed out that stablecoins, which she knows well from having worked at Circle—but I’ll let you tell us more about that later, Marieke—were the first proven large-scale use case that would really become part of the daily lives of individuals and businesses.

From then on, we started talking more frequently. Marieke explained to me that one of the big problems with stablecoins is that they are all, or almost all, denominated in dollars, and that if Europe did not ensure that there were also stablecoins denominated in euros, it would be marginalised in terms of financial infrastructure.

At some point, I think it was my idea to say: this topic, stablecoins in euros, is both very niche, but also very important. It’s perfect for launching a newsletter, because on a niche and important topic, on which there are few people, because it’s so niche, you have to initiate the process by injecting thoughts, ideas, and unique perspectives. That’s what newsletters are for. And that’s how it all started.

Marieke: To add some colour, I’ll just add a few anecdotes. Nicolas and I first met in 2018, when I was at Circle. We were invited to an event in London attended by Prime Minister Theresa May and French President Emmanuel Macron. Both of them were late, but we were on time, so we started chatting. I think at the time, Nicolas, you were writing an article about Bitcoin for Drift Signal, and that was our initial interaction, but it was largely just a casual or coincidental meeting rather than anything significant.

Since then, Nicolas and I have often worked together. He’s someone who has a different perspective—I call him “The Grand Vizier”. He’s someone who always thinks more broadly and laterally than many of the usual advice you might find.

When we did the interview for Drift Signal, it was 360 degrees—we went deep and broad on the entire crypto industry. Nicolas is quite skeptical of the industry, and during the entire interview, I was thinking: “Oh dear, I can’t convince him that something very important is happening”. And I was thinking: “If I can’t convince Nicolas that this is really very important, where is the world going?”

We did this interview and I think something clicked about stablecoins and their importance. From then Nicolas had the idea of the newsletter. I’ve never really written a newsletter and I know it takes time, so I was thinking: is this really where we should be spending our time?

Turns out that it’s actually a great idea. First of all, it’s a very niche subject. There’s very little written about the topic in depth, beyond all the tweets you can read all day long. I also think that the approach we have is quite complementary—I have spent quite a few years in the world of cryptocurrencies, with Circle and NEAR, and I’ve also spent quite a few years in the banking world with NatWest and I continue to do a lot of advisory work on projects across the spectrum. But Nicolas has a very research-oriented, in-depth, economist’s view of the world and he understands the issues in depth and puts them in a historical context. It’s great that we are different but very complementary. We launched it in June 2025, and it is going from strengths to strengths and has gained quite a lot of traction [some stats here].

L’ADN: Do you have any idea who your readers are?

Marieke: Yes, because they often message us afterwards—either because they read the newsletter, or heard about it and have been forwarded an article.

What matters to us is seeing the ideas we are trying to put forward become mainstream. For example, the key idea that ninety-nine per cent of stablecoins are in dollars, and that if we don’t do something, there’s a huge problem—is one of the first key ideas that we saw come up repeatedly after writing about it. At all levels, at the central bank level, at the Treasury level, at the bank level, at the FinTech level. So that’s something that has really stuck.

Then we also see ideas such as the new stack of money take on. That idea was novel because often things are put in opposition; it’s either CBDC, tokenised deposit, or stablecoin, and everything is put into a war between one and the other. But we don’t think that’s the case. We think it can be harmonious and it can be a stack.

These are also ideas that we see, and when we see them being taken up, it gives me a better idea of who is reading [for example, our recent Barrels to Bytes article, published shortly after this interview, has attracted considerable attention.]

Nicolas: Basically, our readers are many professionals in the sector, both from traditional banking and probably also from FinTech start-ups in general, and crypto in particular. I was also going to say people in the world of central banks, but I think these people remain discreet due to their mindset and professional obligations. I don’t even know if they would explicitly subscribe to a newsletter for fear their names would appear on some subscriber lists. But clearly, given how much buzz there has been in the market, the feedback we get and the ideas we see spreading, we know that this content has been circulating, has been read at the highest levels, and is attracting more and more interest.

“We’ve all been forced to revisit our old macroeconomics lessons”

L’ADN: Actually, you launched it in June, which I believe was around the same time that Donald Trump signed the Genius Act, although I’m not sure of the exact date. That’s exactly what I wanted to start with. How do you analyse this turning point, this regulatory shift that has recently taken place in the US? How can we analyse it?

Marieke: I’m going to go back in history a bit. What’s interesting is that crypto has had a very difficult past with the world of regulation, particularly in the US. There were all these stages of fearing the regulator and getting sued [often referred as Choke Point 2.0], and very few entrepreneurs were able to stay in the United States, so we had a whole wave of entrepreneurs and start-ups that were mainly based in Europe, because even Asia had closed its doors for quite some time [China banned crypto trading in 2021].

Trump’s election was a turning point as he did really put Bitcoin into the mainstream narrative. That, in itself, is a huge movement. The Genius Act is something that had been in the works for months, waiting for Trump to arrive. And from the moment he was elected, the doors were wide open for business. The industry was finally legitimised.

Genius is interesting, because MiCA, the European regulation, is ultimately quite similar to Genius. We could go into several details and point out the differences, but MiCA was there before Genius, yet it didn’t have the same impact at all. Once Genius arrived, it completely opened the floodgates and made a huge number of people around the world realise that this industry is not insignificant. And that stablecoins are something of strategic importance, particularly for the US.

L’ADN: Nicolas, do you agree with this analysis?

Nicolas: Yes, I would say I place this in the broader context of Trump coming to power and everything he aimed to shake up. He did so by announcing changes in advance and, in a way, keeping his promises—not necessarily by achieving many results, but by stirring things up in all directions. The way I usually explain it is that because of Trump, since January 2025, we’ve all been forced to revisit our old macroeconomics lessons. I learned macroeconomics at Sciences Po literally twenty-five years ago and I’ve never put it into practice. When you work in the corporate world, especially in the world of tech and start-ups, these are not topics that interest you at all, unlike what people in macro hedge funds or even public equity analysts and so on might do.

And then Trump, with his talk of tariffs, imbalances, trade with China, his election, his arrival in power and his first announcements, suddenly there was a huge amount of macroeconomics. With our our article How Stablecoins Are Cementing US Hegemony For Decades To Come what we were trying to explain is that the mirror image of the US trade deficit, the fact that the US imports a huge amount of manufactured goods from China, is that the US exports a huge amount of dollars, since it pays for its imports in dollars. As a result, the whole world has dollars. And if Trump reverses this, and seeks to reduce this trade deficit, it will automatically translate, in accounting terms, into fewer dollars in circulation abroad.

And when you start reading about this, you have a kind of superficial, intuitive understanding, but then you realise that no, you still need to go back and re-read some of the fundamentals of macroeconomics. And one of the pillars of macroeconomics, as you may know, is monetary policy, which has a huge influence on all of this, because it determines the quantity of money and the interest rates on different currencies. And so, it determines the balance that will be established between different countries and their currencies.

So, the whole movement to open the floodgates and inundate the world with dollar-backed stablecoins is, of course, a technological narrative that delights all the entrepreneurs who wanted to create new tools and new platforms for this. But it is also a macroeconomic narrative that could have considerable consequences, comparable in some ways to what Americans call the Nixon Shock, i.e. the decision in 1971 by the Nixon administration to abandon the convertibility of the dollar into gold. Now, my general theory is that 2025 is a new 1971. I don’t know if it will go down in history as the ‘Trump Shock’, but it must be acknowledged that it played a decisive role in this whole story [after the interview we wrote an article about this, 2025: The Year of The Trump Shock.]

“2025 is a new 1971”

L’ADN: That’s exactly the question I wanted to ask you, because I read that you mentioned Bretton Woods at one point, which could reconfigure the entire macroeconomic landscape at the global level. Could you explain a little more in detail how we might be experiencing that moment today?

Nicolas: Yes, well, Bretton Woods is an interesting reference because we’ve actually rebranded our newsletter, renaming it from Euro Stable Watch to Currency of Power. In doing so, we want to broaden the subject matter, meaning we decided to move away from the niche of euro stablecoins whilst continuing to cover it, but precisely to take a step back and think about it on a larger scale, i.e. the Bretton Woods system, how it ended and what replaced it.

But to think about branding, positioning, subtitles, the baseline and all that, I revisited the history a little, and I realised the following: In fact, the Bretton Woods system was a system that existed between 1944, when it was negotiated in Bretton Woods in the US, and 1971, when Nixon, with his unilateral decision to suspend the convertibility of the dollar into gold, put an end to the Bretton Woods system. Today, many people are asking: what will the post-Bretton Woods era look like? But in fact, we have been in the post-Bretton Woods era since 1971! What we are now trying to invent, or better understand, or put in place, is a post-post-Bretton Woods system. It’s a post-floating exchange rate system.

And that is the big question, of course, but it explains why everyone always refers to Bretton Woods, because Bretton Woods is a reassuring and positive story, because it was really delegates from all over the world who got together over several days to reflect, to debate, and to engage in power struggles that were brutal, particularly between the Americans and the British. But in the end, they arrived at a collective solution that gave rise to institutions that are still with us today, such as the IMF, the World Bank, the Bank for International Settlements, etc.

Conversely, the shift in 1971 was purely unilateral. Without consulting anyone, the US said: we can no longer maintain this system, we’ve got ourselves into a mess. We’re cutting it off, we’re stopping it and we’re letting everything float.

The question now is: will the system that emerges from this Trump Shock of 2025 be a multilaterally negotiated system, as was done at Bretton Woods in 1944? Or will it be a system imposed by a unilateral decision of the US, taken in its own interest and not necessarily in the collective interest of all the countries of the world?

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On August 15, 1971, President Richard Nixon appeared on television to announce that America would no longer convert dollars to gold at a fixed rate. In seventeen minutes, he shattered the Bretton Woods system that had governed international finance since World War II. The “Nixon Shock,” as it came to be known, ultimately asserted American power and reshaped global capitalism for the next half-century.

Fifty-four years later, we may have witnessed its sequel. The year 2025 will likely be remembered as the “Trump Shock,” when America aggressively claimed ownership of a new monetary system. Where Nixon closed the gold window to protect American interests, Trump opened the crypto window to assert American control over it. Where Nixon acted defensively to preserve dollar hegemony, Trump moved offensively to extend it into the age of computing and networks.

Nixon’s decision took decades to fully manifest, ultimately enabling the financialization of the global economy. Trump’s crypto pivot might compress that timeline from fifty years to five, potentially leading to the tokenisation of not just money but every asset class on earth—with America, improbably, holding the conductor’s baton.

The Architecture of Disruption

The Trump Shock didn’t arrive with a single television address but through a coordinated legislative blitzkrieg that insiders now call “Crypto Week.” In July 2025, Congress passed three interlocking pieces of legislation that transformed America from crypto skeptic to crypto champion in the span of days. Each bill was a pillar in a larger structure designed to make the US, in Trump’s characteristically modest phrasing, “the crypto capital of the world.”

• The GENIUS Act, signed on July 18, established the first comprehensive federal framework for payment stablecoins. The Genius Act was an architectural reimagination rather than a simpler incremental reform. By creating uniform licensing paths and supervision requirements, it enabled stablecoins to move away from regulatory gray zones into legitimate financial infrastructure. With it the message to the world became unmistakable: dollar-backed stablecoins were now an instrument of American monetary sovereignty and its newest export.

• The Anti-CBDC Surveillance State Act took an even bolder stance. By explicitly prohibiting the Federal Reserve from issuing a direct-to-consumer Central Bank Digital Currency (also called retail CBDC), Congress made a fascinating gambit. Rather than compete with China’s digital yuan through a government-controlled “Fedcoin,” America would franchise its digital currency to private enterprise. Let Beijing have its surveillance coin; Washington would have a thousand flowers bloom, each one denominated in dollars.

• Finally, the CLARITY Act completed the trifecta by statutorily classifying decentralised tokens like Bitcoin as commodities rather than securities. This single classification eliminated years of regulatory uncertainty and legal battles that had so far pushed crypto activities offshore. Overnight, building crypto businesses in America went from navigating a minefield to following a roadmap. And with this, crypto talent started relocating back to the continent.

Together, these three acts did more than provide regulatory clarity; they made a philosophical statement about the future of money. While other nations treated digital currencies as tools for government control or instruments of speculation, America treated them as instruments of private enterprise. While others feared disruption, America embraced acceleration.

The Gold Rush in Pinstripes

If legislation set the framework, markets supplied the validation. In the second half of 2025, crypto companies surged from the periphery to the heart of global finance.

• Circle’s initial public offering in June 2025 legitimised an entire industry. The company behind USDC, the second-largest stablecoin, priced its shares at $31—already above expectations. By day’s end, Circle’s stock had surged 168%, creating more wealth in eight hours than most companies generate in decades. The market had finally recognised what stablecoins represented: the privatisation of money itself.

• Then the floodgates opened. eToro went public in May, Bullish in August, and Gemini and Figure Technology Solutions in September. Each listing built on the last, creating a feedback loop of legitimacy. When BitGo filed its IPO papers and both Kraken and Consensys announced 2026 listing plans, the message was clear: crypto had moved from the fringe of venture capital to the heart of Wall Street.

• Bitcoin also played a role in this mainstream embrace. In early October 2025, it surpassed $126,000, breaking a psychological barrier that shifted it from speculative asset to portfolio staple. The SEC’s approval of standardized listing rules for spot crypto ETFs further accelerated adoption, cutting approval times to 75 days and paving the way for ETFs covering everything from Solana to multi-asset baskets.

The rapid succession of IPOs and regulatory approvals left little doubt: crypto had moved from experiment to infrastructure. Traditional financial institutions now treated it as a core asset class, and market participants adjusted accordingly.

The Presidential Grift as Feature, Not Bug

No account of the Trump Shock would be complete without addressing its most controversial element: the Trump family’s direct participation in the markets they were reshaping through regulation, using their position to advance their own interests.

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The $1.5 Trillion Question

Abu Dhabi controls $1.7 trillion in sovereign wealth—more than the GDP of Spain. The emirate is betting this capital, combined with regulatory innovation and geographic advantage, can transform it into the world’s next great financial gateway.

After attending Abu Dhabi Finance Week (ADFW) last week, I’m finding the strategy even clearer: Abu Dhabi is actively designing the future of finance.

ADFW is the MENA region’s premier financial event, organised by Abu Dhabi Global Market (ADGM), Abu Dhabi’s international financial centre and regulator. This gathering brings together global leaders, policymakers, investors, and innovators to explore the future of finance, with institutions managing trillions in assets discussing everything from AI to digital assets to sustainability.

This year, the conference brought together former Barclays CEO Bob Diamond, Ray Dalio, crypto pioneers, institutions managing trillions, and regulators for closed-door stablecoin sessions. The geographic diversity exceeded typical Western conferences—perspectives flowed from Asia, Africa, and the Middle East.

Understanding the Emirates Experiment

The United Arab Emirates (UAE) operate as a federation where power is distributed among seven emirates and their ruling families. Dubai captures global attention with its skyline and merchant mentality. But it’s Abu Dhabi which holds 94% of the UAE’s oil reserves and serves as the federation’s political capital.

This dynamic creates productive tension. Dubai pushes boundaries with debt-fueled mega-projects. By contrast, Abu Dhabi deploys patient, strategic investments backed by sovereign wealth. Here’s a parallel that’s often made: “Dubai is the flashier sibling who gets all the attention at parties. Abu Dhabi owns the house.”

The rivalry drives excellence. When Dubai launched VARA (its crypto regulator), Abu Dhabi refined ADGM’s framework. When Abu Dhabi attracts a major financial institution, Dubai counters with new incentives.

The Hong Kong Parallel

The energy in Abu Dhabi this year reminded me of Hong Kong pre-2008, but with a distinctly 21st-century twist. Just as Hong Kong served as the gateway between China and the world—with Shenzhen built on the other side to maximise that relationship—Abu Dhabi now positions itself as the neutral gateway to the Middle East and Africa.

The city offers compelling advantages:

• Geopolitical Neutrality: The emirate maintains a delicate and fragile balance, hosting American military bases, Chinese state enterprises, and welcoming capital from both Russia and Europe. This neutrality is a crucial asset in an increasingly fragmented world—as emphasised by a strong discouragement of any contentious political or religious commentary at the ADFW to maintain a “business-focused and neutral environment.”

• Regulatory Clarity: In the burgeoning digital finance sector, Abu Dhabi provides a clear regulatory environment, offering “sandboxes” and open communication to help nascent firms navigate applications and rules of engagement.

• Abundant Capital: The financial ecosystem is characterised by significant capital depth, with one founder noting that “Tickets here are $100 million minimum.”

• Modern Infrastructure: Visitors experience a “futuristic” environment, featuring state-of-the-art infrastructure, including a modern airport with seamless facial recognition systems and contemporary buildings.

• Strategic Geographic Centrality: Abu Dhabi’s location offers excellent connectivity to major global hubs: Nairobi is 4 hours away, Europe 6, Singapore 7, and Hong Kong 8 hours away.

Yet behind the limitless perceived ambition lies a certain conservatism. Most players undergo lengthy discussions with regulators before licensing. The queue for regulation is long—a sign of both high demand and careful vetting on ADGM’s part.

The Regulatory Architecture: A Multi-Jurisdictional Framework

To understand Abu Dhabi’s strategy, you must grasp its sophisticated regulatory architecture—a multi-jurisdictional framework that balances flexibility with control while maintaining strict federal oversight of the national currency.

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In the 19th century, Britain faced a crisis: it needed Chinese tea but China wanted nothing in return but silver. The solution was brutal and ingenious—opium. By exporting addiction, Britain reversed its silver drain and secured the wealth it needed to feed its empire.

Today, America faces a strikingly similar dilemma. It runs persistent trade deficits, especially with China, yet the world has little appetite for its products. The modern answer is less overtly violent but no less pervasive: Treasuries and dollar-denominated assets. Just as opium created dependence in China, these financial instruments bind the world to the dollar, enabling the US to import what it needs while maintaining global influence.

This edition of Currency of Power explores the historical parallels, the mechanics of America’s modern “opium wars,” and the consequences of an empire running on debt.

Britain’s Silver Crisis and the Opium Solution

By the 1830s, Britain faced a devastating trade imbalance with China. The British Empire imported more than 30 million pounds of tea each year, along with large quantities of silk and porcelain. Yet China, under Emperor Qianlong, showed little interest in purchasing British goods in return, making clear that it did not view trade as a two-way exchange. In 1793, the emperor remarked to King George III that the Qing dynasty possessed all things and had “no use for your country’s manufactures.”

With China unwilling to take British goods, Britain had to pay for Chinese products only in silver, the hard currency of the age. Over time, the steady loss of silver became dangerous for the British economy, as the flow of precious metal out of the country created growing deflationary pressure.

From a modern perspective, it seems a bit odd that something as plain, cheap, and plentiful as tea leaves could sit at the centre of such high-stakes geopolitical strain. To understand how this happened, we need to look back at when and why tea became so firmly rooted in Britain’s economic life.

Specifically, tea’s importance was closely tied to the Industrial Revolution, as urban growth and factory work reshaped daily routines and diets:

• Beer, long the standard drink for workers because of its calories and safety, no longer fitted the needs of industrial labour. Tea offered a better alternative: safe when boiled, quick to make, and mildly stimulating. With milk for extra calories and sugar made ever more available through colonial trade, it kept workers going through long factory shifts.

• Over the course of the 18th century, tea gradually became essential to Britain’s industrial economy. By the turn of the 19th century, it had become so central that the government drew roughly 10% of its revenue from tea duties alone. Britain’s demand for tea grew each year, but it could only be sourced from China and, because of the emperor’s intransigence, had to be paid for in scarce silver.

Faced with the resulting financial crisis, the British Empire turned to two complementary solutions.

One, told in great detail in Sarah Rose’s thrilling For All the Tea in China, was to send the Scottish botanist Robert Fortune to China. Tasked with breaking China’s monopoly on tea, Fortune travelled covertly into the heart of the restricted tea-growing regions, disguised as a local merchant. He collected seeds, live plants, and detailed knowledge of cultivation and processing techniques, which he then transported to British-controlled India using specially designed terrariums. Fortune’s work enabled the British to establish tea plantations in Assam and Darjeeling, creating a domestic supply of tea outside China and reducing Britain’s dependence on Chinese imports.

The other solution was what Arie van Gemeren recently called “narco-imperialism.” The strategy aimed to reverse the silver outflow by introducing China to an addictive commodity: opium, cultivated under strict monopoly by the British East India Company in Bengal. Although the Qing government had banned opium in 1729, the British established an elaborate smuggling network to circumvent the prohibition.

The Company maintained plausible deniability by auctioning opium to “country traders”—independent British merchants technically unaffiliated with the Company. These traders smuggled opium into China, sold it for silver, and deposited that silver with Company agents in Canton. The Company then used the silver to purchase tea, closing the financial loop and reversing the silver drain.

The circular flow was complete: Britain grew opium in India, smuggled it into China for silver, then used that same silver to purchase Chinese tea. The drug trade literally funded the tea trade.

The Timeless Investor

The Opium Wars

June 3rd, 1839. Canton Harbor, China…

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4 months ago · 9 likes · 3 comments · Arie van Gemeren, CFA

By the 1820s, silver was finally flowing back into Britain from China via India. At its peak, opium sales generated one-sixth of British India’s total revenues. The empire was effectively running on drug money.

The Reckoning: Military Conflict

By the 1830s, China faced a full-blown addiction crisis while, just like with Britain a few decades before, its treasury haemorrhaged silver. In June 1839, Qing official Lin Zexu confiscated and destroyed over 1,400 tons of opium stockpiled in Canton Harbor. In reaction, British merchants demanded military intervention from London, with Parliament debating the ethics of war over opium and future Prime Minister William Gladstone, then a young MP, condemning it as a war “more unjust in its origin.” The motion to condemn was still lost by nine votes, a slim margin, and Britain went to war with China.

The First Opium War (1839–1842) proved a massive mismatch. British steam-powered warships devastated Chinese junks. When British forces threatened Nanjing, the Qing surrendered. The resulting Treaty of Nanking forced China to cede Hong Kong Island to Britain in perpetuity, open five treaty ports to British trade, pay an indemnity of 21 million silver dollars, and grant British subjects extraterritoriality, providing them with immunity towards Chinese authorities. Though opium went unmentioned in the treaty, smuggling continued with tacit Chinese acceptance, due to the emperor having been subdued.

The Second Opium War (1856–1860) brought even further humiliation, including the looting and burning of the Summer Palace in Beijing. This time, China was forced to officially legalise opium imports. This period, remembered as China’s “century of humiliation” and still a major source of resentment towards the West in China, demonstrated that empires (in that case, Britain) quickly abandon moral pretence when trade balances threaten their very survival.

The New Silver Drain

Fast forward to today, and we find another empire confronting a strikingly similar trade crisis. As Ray Dalio observes in his study of 500 years of empire cycles, the US exhibits classic late-cycle symptoms: massive debt accumulation, wealth inequality, internal political conflict, and challenges from rising powers. The trade deficit represents just one manifestation of this broader imperial decline pattern that has repeated throughout history. And as for trade imbalances specifically, where Britain haemorrhaged silver to China for tea, America now runs persistent deficits with the world—including with China—for manufactured goods, electronics, and countless products that sustain modern life.

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In a recent opinion piece in The Economist, BlackRock CEO Larry Fink made a comparison that caught the attention of the financial world. He argued that tokenisation will have an impact on finance similar to what the internet had on communication—a transformation so fundamental that it will reshape how we think about ownership, investment, and value transfer.

Larry Fink has been talking about tokenisation for quite some time now, whether in his 2025 New Year Letter or more recently in the Middle East at the FII Institute.

Many before him have also been talking about this one phenomenon. Over 7 years ago, Circle’s Jeremy Allaire was already talking expansively about the “tokenisation of everything”. But now the phenomenon is moving from being a prediction to becoming real and having a impact on financial markets. Thus it can’t be ignored anymore.

What Exactly Is Tokenisation?

At its core, tokenisation is the process of creating a digital version of a real-world asset—like gold, property, or shares—on a secure digital system known as a blockchain. The token itself acts as a shared, verifiable record of ownership that everyone in the system can see and trust. Instead of relying on separate institutions to track who owns what and trying to reconcile their individual records, the token holds that information directly, making transfers faster, simpler, and more transparent.

You can think of it like a paper certificate of ownership, but one that exists digitally on a secure network: it cannot be destroyed or altered without agreement among participants, can be accessed from anywhere with the right authorisation, and can be read or processed automatically and independently by systems built to work with it.

The question naturally arises: why would anyone want to do this? Several forces are driving this transformation:

• Tokenisation improves infrastructure and settlement. Blockchain-based systems can operate 24/7, settle instantly, and embed rules and logic that reduce friction across the financial system. Unlike traditional markets, which rely on multiple intermediaries and human intervention, tokenised markets offer a single source of truth and automated governance1.

• Tokenisation broadens access to complex financial products. As Simplify’s Michael Green noted, in tokenised financial markets, sophistication no longer implies exclusivity or high costs. Structured products, bonds, or venture investments can now reach a much wider set of investors without the layers of intermediaries that previously limited participation.

• Fractionalisation further democratises investing. High-value assets—from art and real estate to commodities—can be divided into small, tradable units. This unbundling allows individuals to participate in markets that were once the preserve of the wealthy, while also enabling new forms of liquidity and programmable investment structures.

What’s Being Tokenised?

The range of assets being tokenised today is remarkably diverse. The most well known real world asset being tokenised is fiat money. Stablecoins are nothing less than a representation on a blockchain chain of fiat currency.

But beyond fiat currency, the examples of what is being tokenised are much broader. Here are a few examples:

• Precious metals like gold (Tether, Paxos, MKS PAMP—see below)

• Computing resources such as GPUs (io.net)

• Internet connectivity (Giga)

• Company shares (increasingly being tokenised on regulated digital platforms)

• Voting rights (prediction markets such as Kalshi and Polymarket)

• Real estate

• And countless other real-world assets

The scope is limited only by imagination… and, understandably, regulatory frameworks.

A Closer Look: Gold Tokenisation

Gold provides a particularly instructive example. In our current era of economic uncertainty, gold is making headlines as investors seek safe-haven assets. China for example seems to be hoarding gold like there is no tomorrow. However, actually owning physical gold presents significant practical challenges:

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The dominance of the US dollar has long relied on structural demand tied to scarce and essential commodities. In the 1970s, oil fulfilled that role. The petrodollar system—where Saudi and other OPEC oil exports were priced in dollars and recycled into US Treasuries—created a self-reinforcing global need for the US currency, underpinning American fiscal …

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