1. The "if eurodollars are dollars that circulate offshore, stablecoin are onchain crypto assets that are tethered to the conventional" statement assumes as premise that eurodollars and crypto assets would be interchangeable. They are not. Eurodollars are money, cryptos are not. Nor will they be any time soon. Money is a utility, cryptos are shady, zero-sum schemes to get filthy rich in record-breaking time. So this entire soliloquy is just meaningless.
2. Austin Campbell has a remarkable conflict of interest in this case. He's leveraging his NYU credentials for selling snake oil. When, if ever, he'll be able to recoup his ethical values he flushed down the toilet a while back, one specific, ethically sound, responsible and sensible request he should make is to ask Tether to hold itself to neither more, nor less, but the same exact quantity and quality of financial scrutiny that any other eurodollar bank is exposed to currently. Until such time he can cordially fuck off and bullshit someone else.
This was a fascinating read, thank you so much Adam. A big fan of the Menand-Younger series.
Lots of literature (including the Aldasoro et al. paper you mentioned) has also been written about how stablecoins compared to money market funds, as both are backed by reserves that may suddenly become illiquid, thus leading to break-the-buck scenarios.
On the other hand, the eurodollar analogy underscores their role as unregulated, parallel forms of money that exist outside the direct control of central banks. Unregulated only in the US though – the EU has posed capital and liquidity regulations on stablecoin issuers. Nonetheless, the fact remains that 99 % or so of fiat-based stablecoins are denominated in the US dollar.
I do not think these two different analogies are opposed to each other, quite the opposite, I think they complement each other. Curious to hear if you have thoughts on how these two analogies compare.
I have been fascinated by these markets since I started teaching International Finance to undergrad and grad students.
I would like to add that there is another pillar - eurobonds - that runs parallel to the eurodollar market.
Similar to eurodollars these are dollar-denominated bonds issued outside the US jurisdiction.
Also a very liquid market it is favored by MNCs and soverign states who may be locked out of the domestic dollar market for various reasons.
In addition to the advantage of the currency denomination, eurodollar bonds combined with interest rate swaps can be designed to lower the dollar cost of capital.
It is an absolutely amazing series. I disagree with some of their views though that kind of contradict the transaction facilitation usage core principle and history of EuroDollar.
Stablecoins and crypto cannot replace the EuroDollar because they do not represent the "final useage" of the transaction to such a wide spread actors and they are limited in size and scope and particularly efficiency cost. They are not aggregative.
It is true though that if T2.0 is serious in re-adjusting trade flows, ED loses its purpose and it will shrink when the volume transaction equivalent goes down. We have seen it before (see Money and Empire Marcello De Cecco for example). And it will take some time until we find the next international unit of value.
Many (sigh) years ago I had a friend from Tuscany that used to be a literal XIX century merchant. I have to write up his story because it is both hysterically fascinating and an economy lesson on what makes something money. He was transacting with a specific Tuareg vendor with ... I kid you not ... Nutella, loading up his truck with couple pallets of it!
Whatever you say about "fragility" of Eurodollar system, and/or efficiency of modern international payment system, at least the main Eurodollar banks are audited, reasonably covered by AML/KYC and based not in Bahamas or El Salvador. SWIFT system has also been functioning fairly well for decades.
Incredibly informative. I now have at least some way of understanding the relationship between stable coin and cryptocurrency. (Mind you I’m still suspicious of crypto; the introduction of Trump crypto confirmed those suspicions) Keep it up.
Dear Adam,
if I could make 2 points, very briefly.
1. The "if eurodollars are dollars that circulate offshore, stablecoin are onchain crypto assets that are tethered to the conventional" statement assumes as premise that eurodollars and crypto assets would be interchangeable. They are not. Eurodollars are money, cryptos are not. Nor will they be any time soon. Money is a utility, cryptos are shady, zero-sum schemes to get filthy rich in record-breaking time. So this entire soliloquy is just meaningless.
2. Austin Campbell has a remarkable conflict of interest in this case. He's leveraging his NYU credentials for selling snake oil. When, if ever, he'll be able to recoup his ethical values he flushed down the toilet a while back, one specific, ethically sound, responsible and sensible request he should make is to ask Tether to hold itself to neither more, nor less, but the same exact quantity and quality of financial scrutiny that any other eurodollar bank is exposed to currently. Until such time he can cordially fuck off and bullshit someone else.
Kind regards,
A fellow traveller.
This was a fascinating read, thank you so much Adam. A big fan of the Menand-Younger series.
Lots of literature (including the Aldasoro et al. paper you mentioned) has also been written about how stablecoins compared to money market funds, as both are backed by reserves that may suddenly become illiquid, thus leading to break-the-buck scenarios.
On the other hand, the eurodollar analogy underscores their role as unregulated, parallel forms of money that exist outside the direct control of central banks. Unregulated only in the US though – the EU has posed capital and liquidity regulations on stablecoin issuers. Nonetheless, the fact remains that 99 % or so of fiat-based stablecoins are denominated in the US dollar.
I do not think these two different analogies are opposed to each other, quite the opposite, I think they complement each other. Curious to hear if you have thoughts on how these two analogies compare.
A comment on the eurodollar and eurobond markets:
I have been fascinated by these markets since I started teaching International Finance to undergrad and grad students.
I would like to add that there is another pillar - eurobonds - that runs parallel to the eurodollar market.
Similar to eurodollars these are dollar-denominated bonds issued outside the US jurisdiction.
Also a very liquid market it is favored by MNCs and soverign states who may be locked out of the domestic dollar market for various reasons.
In addition to the advantage of the currency denomination, eurodollar bonds combined with interest rate swaps can be designed to lower the dollar cost of capital.
Hey Adam, really liked the piece. From dodging Cold War sanctions to evading modern regulation... some things never change in global finance.
It is an absolutely amazing series. I disagree with some of their views though that kind of contradict the transaction facilitation usage core principle and history of EuroDollar.
Stablecoins and crypto cannot replace the EuroDollar because they do not represent the "final useage" of the transaction to such a wide spread actors and they are limited in size and scope and particularly efficiency cost. They are not aggregative.
It is true though that if T2.0 is serious in re-adjusting trade flows, ED loses its purpose and it will shrink when the volume transaction equivalent goes down. We have seen it before (see Money and Empire Marcello De Cecco for example). And it will take some time until we find the next international unit of value.
Many (sigh) years ago I had a friend from Tuscany that used to be a literal XIX century merchant. I have to write up his story because it is both hysterically fascinating and an economy lesson on what makes something money. He was transacting with a specific Tuareg vendor with ... I kid you not ... Nutella, loading up his truck with couple pallets of it!
Thank you -- brillian explanantion
Maybe I'm just thick, but how is any of this (absent Fed backing, explicit or otherwise) distinct from wildcat banking?
Whatever you say about "fragility" of Eurodollar system, and/or efficiency of modern international payment system, at least the main Eurodollar banks are audited, reasonably covered by AML/KYC and based not in Bahamas or El Salvador. SWIFT system has also been functioning fairly well for decades.
The comparison to the MySpace to Facebook progression assumes the result was a good thing?
Incredibly informative. I now have at least some way of understanding the relationship between stable coin and cryptocurrency. (Mind you I’m still suspicious of crypto; the introduction of Trump crypto confirmed those suspicions) Keep it up.
A lucid insightful elucidation of the complex euro dollar status and its eventual replacement by stablecoin.
This column alone is worth the annual subscription.
Thank you Mr. Tooze