Crypto Reserve-ations

• Sep 21, 2022
Crypto Reserve-ations

Russia Embraces Cryptocurrencies for Cross-Border Payments: Could Bitcoin be the Game Changer?

by Ryan Shea

Key takeaways

  • Previous announcements from Russian policymakers show they are not naturally predisposed towards cryptocurrencies.
  • Nevertheless, in response to sanctions imposed after the invasion of Ukraine, they have signalled the equivalent of a handbrake U-turn with regards to cryptocurrencies in one important regard, their use for international payments.
  • Indeed, they have concluded that “it is impossible to do without cross-border settlements in cryptocurrency” and the PM has set a December 19 deadline to propose crypto legislation ahead of implementation next year. Words are turning into actions.
  • The impact could be profound - potentially leading to a fundamental change in the way the international financial system operates.
  • Assessing the crypto impact of Russia’s proposals one needs not only to be attuned to this possibility, but also have a strong sense about what such a system could look like and which cryptocurrencies would likely be involved because not all are suitable.
  • Without wishing to give too much away, one with Bitcoin as its bedrock fits the bill.

Back in January, the Russian central bank proposed banning all cryptocurrency operations, including trading, issuing and mining, as well as blocking the on-off ramp versus the RUB in order to reduce further the attractiveness of cryptocurrency ownership[1]. More recently, in July, President Putin signed a bill banning the use of cryptocurrencies as a means of payment for domestic goods and services[2]. Such announcements show that Russian policymakers are not naturally predisposed towards cryptocurrencies.

Handbrake Turn

Nevertheless, after the imposition of widespread economic and financial sanctions by western countries in the wake of their invasion of Ukraine, including the freezing of $450bn of its central bank’s forex reserves, Russian policymakers have signalled the equivalent of a handbrake U-turn with regards to cryptocurrencies in one important regard, their use for international payments[3].

According to a recent media report by Tass news agency, Deputy Finance Minister Alexei Moiseev stated the Russian central bank has agreed to legalize cryptocurrencies for cross-border payments after concluding that “it is impossible to do without cross-border settlements in cryptocurrency”[4]. Russia is not the only country to have recently announced such steps. Iran, a week prior, also announced that it was approving the use of cryptocurrencies to pay for imports[5].

As I stated in a research note published at the time of the incursion into Ukraine[6]

“… Russia has been effectively isolated from the traditional global financial sector and in the process it, not to mention other nations such as China, has learned that the fiat foreign reserves they accumulate overseas can be blocked by government decree, rendering them practically useless when they are most needed. Given this, it is hard to envisage them not accelerating plans to continue to diversify away from standard reserve assets – such as the US dollar - in preference to unbannable assets, like decentralized cryptocurrencies, even if they do not meet the usual liquidity metrics normally required of them.”

The warming up by Russia (and other nation-states) towards cryptocurrencies was something that was readily foreseeable months ago. However, now there is momentum building in this direction – words are turning into actions[7] - it is worth considering what the implications are for the broader crypto sector.

For some, the answer is unambiguously bullish, based on the assumption that it will generate greater capital inflows into cryptocurrencies. For others it is bearish, because it will reinforce crypto’s stigma of illegality and likely result in an even greater crackdown by regulators particularly in the west, hindering crypto’s wider adoption. Both arguments are logically consistent, but in my view the impact could be even more profound. Indeed, it has the potential to bring about a fundamental change in the way the international financial system operates[8].

Lessons Learned

As a starting point, it is important to recognize Russia, and the world at large, have learned two key lessons since the start of the Ukraine war. The first lesson is that Russia produces a lot of things other countries continue to want, fossil fuels being top of the list, because there are no readily available substitutes especially over the short-to-medium term[9]. The second lesson, alluded to in the above quote, is that there is a fiat equivalent of the famous crypto phrase “Not your keys, Not your coins” and this holds true even when there is a long-standing trading relationship as is the case between Russia and the West[10].

The implications that flow from these lessons are two-fold. Not only are Russia and many of its trading partners incentivized to continue to trade bilaterally, despite western sanctions and the associated risk of being subject to secondary sanctions, but Russia is incentivized to request payment for its exports in a form that is beyond the reach, i.e., unbannable by the governments of other nation-states, especially the US. Incentives matter as Charlie Munger, Warren Buffet’s partner once quipped, “Show me the incentive, I’ll show you the outcome”.

Much of the media commentary discussing the latest Russian crypto announcements focuses on their potential to circumvent sanctions and therefore facilitate continued bilateral trade (lesson one). This is unquestionably an important aspect, but what is often overlooked, is the unbannable aspect (lesson two) which is of particular importance for Russia because since the early 2000’s it has typically exported more goods and services than it imports.

Why does this matter? Let me explain.

Last year, Russian exports totalled $550bn versus $378bn in imports, a difference that directly contributes to one of the largest current account surpluses in the world (boosted by the surge in gas and oil prices Russia’s current account has tripled to more than $167bn - see chart).

The way to think about a current account surplus is that it represents the change in a country’s claims on assets in the rest of the world, represented in the balance of payments statistics by a matching deficit in the capital and financial account[11].

Top Current Account Surpluses/Deficits (IMF 2022 Estimate - US$ bn)

Source: IMF
Source: IMF

As the above chart also shows, the country running the largest current account deficit globally is the US (roughly $800bn in 2021). This is not a recent development, it has been a persistent trend over decades. By virtue of being the world’s largest international reserve currency, with generates persistent capital inflows from the rest of the world, the US is able to spend consistently more than it earns. This is something former French Finance Minister Valéry Giscard d’Estaing in the 1960’s called America’s “exorbitant privilege”[12].

The sums involved are not trivial. Accumulated claims by the rest of the world on the US total $18tr, or 70% of its nominal GDP[13]. That’s a pretty big number by anyone’s standards and dwarfs that of any other country (the UK comes a distant second with a net international investment deficit of just under $1tr – nearly 20X smaller). Such large international borrowing was already unsettling some creditor nations, including China and Russia, worried about the US’ ability to make good on those claims. The imposition of sanctions, particularly the freezing of Russia’s central bank forex reserves which form part of those claims, only serves to exacerbate pre-existing concerns about holding US dollar-denominated assets. A US dollar depreciation may be unwelcome, because it reduces the value of overseas investors’ claims, but if those claims are banned they effectively become worthless. For any investor, including reserve managers, return of capital always trumps return on capital.

Analysing global imbalances may not be everyone’s cup of tea (apologies for that) but what it underlies is just how powerful the US position is within the global fiat money system. It means most nations, not just Russia, are dependent upon the continued goodwill of the US. When international relations are good, having a monetary system dominated by one player – i.e. highly centralized – may not be overly concerning. But, as now, when international relations are deteriorating and trust between nation-states is falling this quickly becomes problematic.

For countries, like Russia, running current account surpluses and accumulating foreign capital in the process, and who are no longer comfortable with trusting the US the solution is not only to find an alternate to the US dollar, but to find one that is also beyond the US sphere of influence. This is a much tricker proposition. For example, it rules out the majority of currencies countries typically hold as international reserves, such as the EUR, GBP or the JPY.

Crypto-Based Alternatives

Obviously, Russia is taking the view that cryptocurrencies are the way to go. They are the crypto trailblazer for nation-states and their progress will be closely watched by others. Indeed, right from the start Russia won’t be acting in isolation because they are considering cryptocurrencies for cross-border payments, which necessarily implies the involvement of at least one other nation-state[14].

Initial steps will likely be tentative but, if all goes as smoothly as Ethereum’s recent Merge did (BTW - congrats Vitalik et al. that was quite a technical achievement), then using cryptocurrencies for cross-border payments could go viral, particularly given the present system for making cross-border payments is far from ideal as it is costly, slow, lacking in transparency and complex.

To illustrate this, consider the graphic below taken from a recent ECB working paper[15] looking at cross-border payments systems. It shows the current process from a financial accounts perspective. Six financial institutions (often more than this) are required, of which two are central banks who always sit in the middle of cross-border transactions. This is what gives governments - the ultimate bosses of central banks - their international regulatory “bite”, including their ability to ban certain transactions/assets.

Non-instant[16] Cross-border Payment Through Correspondent Banking

Source: ECB
Source: ECB

As the authors of the working paper readily acknowledge, the current system is clearly far from perfect and makes it ripe to be replaced (even SWIFT, the global cross-border payments system, is revisiting blockchain technology, an implicit admission that the current system needs improvement[17]) especially when it also requires users to trust a highly centralized player whose objectives may no longer align with their own.

Mr. Big

My rationale for suggesting this could mark the birth of a new international monetary system to rival the current fiat system is because there is one nation-state in particular which no doubt appreciates the benefits from an alternative to the current system: China, a large economy, deeply integrated into global trade with $3.2tr in forex reserves. It is Russia’s largest trading partner after the EU[18] and the US has recently said it is contemplating imposing sanctions to deter it from invading Taiwan[19]. The sanctions being considered are not as draconian as those imposed on Russia, but it does suggest a clear direction of travel.

To analyse what the crypto impact of Russian’s adoption of cryptocurrencies for cross-border payments will be one not only needs to be attuned to this possibility, but also have a sense of what such a system could look like because the unbannable criteria that insulates nation-states from the financial influence of other nation-states – a key strength and differentiator from the current US-centric fiat system - significantly limits the range of suitable cryptocurrency alternatives.

A rather obvious starting point in the search for a crypto replacement is Bitcoin, the first and largest cryptocurrency by market cap.

Trust Minimization

Satoshi’s radical innovation with Bitcoin was to enable parties to make financial payments in a trust-minimizing[20] manner by removing the need for a central entity tasked with money issuance and transaction verification[21]. In fact, centralization necessarily implies trust as one must rely on the central entity to do what it is tasked to do – they are inseparable.

From the Bitcoin white paper and early forum posts it is pretty obvious that the central entity he/she/they had in mind was the central bank, which ultimately operates under the control of the fiscal authority (aka the government, or more often in the past, the monarchy). This is because, to paraphrase Satoshi, history shows they cannot be trusted not to debase the currency[22]. By inventing Bitcoin, Satoshi was attempting to take control of money out of the government’s hands and return it back to the people.

However, by design Bitcoin runs a permissionless blockchain[23]. This means no one is in charge of Bitcoin and no one can stop users from using it or mining it. Anyone, or any entity including, if they so wish, governments of nation-states can benefit from this trust-minimizing payment system simply by transacting in Bitcoin – it is truly decentralized technology.

Decentralized systems are typically more inefficient than centralized systems by virtue of the duplication of information and the effort needed for it to be distributed around the network. As a result, there is a natural tendency for systems to centralize either over time and/or as they scale[24]. But, in terms of using Bitcoin for cross-border payments, this loss of efficiency is not readily apparent – again illustrated with a graphic taken from the ECB working paper referred to above.  Considerably less complex I think you would agree and more efficient (settlement, or finality in crypto-lingo, is measured in minutes not days).

Cross-border Payment In Bitcoin

Source: ECB
Source: ECB

While Bitcoin certainly achieves the desired unbannable/trust-minimizing criteria due to decentralization and is less complex/more efficient than the present cross-border payment system, there is one stand-out negative[25]: it’s high price volatility. A financial asset that can fluctuate more than 50-60% in value over a 12 month period (or drop 7% in a matter of hours after a worse-than-expected US CPI inflation number[26]), is far from ideal. It hinders its ability to satisfy one of the three prerequisites functions of money, namely to act as a medium-of-exchange.


Reflective of this problem, which the authors of the ECB working paper also highlight, several media reports suggest Russia is working with several “friendly countries” to establish clearing platforms for international settlements using stablecoins[27].

For those unfamiliar with cryptocurrencies, stablecoins are tokens whose price is benchmarked to some reference value, typically a fiat currency (the US dollar being the most popular) or a commodity (such as gold). As a result, their price volatility is considerably lower than unbacked cryptocurrencies like Bitcoin or Ethereum[28] making them much closer substitutes to fiat money.

Skipping commodity-backed stablecoins for the moment (I’ll come back to them), stablecoins benchmarked to fiat come in three main flavours, categorized by how their valuation anchor operates. These are: fiat-backed, crypto-backed and algorithmic[29].

Fiat-backed, the most popular form of stablecoins at present accounting for over 90% of the $150bn market cap[30], are fully-backed (or supposed to be)[31] by holdings of tradfi assets, such as commercial bank deposits, government bonds and/or other liquid collateral. Their design structure is relatively straightforward to understand and implement, essentially they are just a “crypto-appendage” to the existing financial system.

This simplicity does, however, come at a cost. Because their valuation anchor resides within the tradfi system, it means the issuers of these stablecoins are accessible by regulators in the nation-state which issues the currency the collateral is denominated in[32]. Under threat of being excluded from accessing tradfi assets, which is business critical for these stablecoin issuers, they have no choice but to comply with government edicts. USDC’s recent decision to freeze accounts associated with the decentralized crypto mixer was a very clear demonstration of such regulatory reach[33].

A Crypto Curve Ball

Obviously, nation-states seeking to insulate themselves from US influence are not planning to use Tether or USDC – the two most popular stablecoins – for this very reason. Instead, if they decide to go down the fiat-backed stablecoin route, then almost certainly they will create their own version (let’s call it R-stable[34]), backed by holdings of financial assets within the domestic banking system. The question then becomes how do foreign entities wishing to purchase their exports get these R-stables? Simply making an international transfer and depositing funds in their trading partner’s banking system in order to mint R-stable doesn’t make much sense. It would be no more efficient or secure than the present system.

An alternative could be one modelled on Curve, a decentralized exchange (DEX) for stablecoins. I covered this exchange in some detail in an earlier research note[35], but briefly, Curve operates liquidity pools that represents sets of shared tokens users deposit in order to earn rewards and a share of fees from transactions over the exchange. One could imagine that another country wishing to buy exported goods creates its own fiat-backed stablecoin, let’s call it C-stable[36], minted by depositing fiat in their banking system, which they then trade for R-stable over a public sector equivalent of Curve[37].

Sounds good? However, liquidity doesn’t magically appear.

The way Curve works is that the “exchange rate” stability between the two stablecoins comes from liquidity pool operators (LPOs) arbitraging differences in the relative prices of the two stablecoins in order to try and keep the underlying pool balanced[38].

For example, if there is oversupply of C-stable relative to R-stable, due say to a large export order being transacted, the pool would become unbalanced. In order to rebalance the pool C-stable would sell at a small discount to R-stable, generating a profitable arbitrage opportunity which persists until the pool becomes more balanced. For this mechanism to work, it crucially depends upon LPOs being indifferent to holding either R-stable or C-stable. Ensuring this implies they must have unfettered access to the tradfi banking systems in both countries, which in turn means cross-border “trust”.

While conducting such operations with “friendly nations” mitigates the risk of being unable to access the underlying fiat collateral which provides the valuation for the stablecoin, it doesn’t remove it altogether. In short, fiat-backed stablecoins cannot, by definition, be unbannable. Note: Cross-border transactions in central bank digital currencies (CBDCs) – an innovation many central banks are actively researching – also relies on nation-states trusting each other and hence they are equally unsuitable given the unbannable design constraint[39].

Custody Complications

At its heart, the issue with fiat-backed stablecoins is about where the assets providing the valuation anchor are custodied. Commodity-backed stablecoins, particularly gold-backed which have been mentioned in the media as another possible crypto avenue for Russia[40], have a similar drawback.

Take, for example, one of the most popular commodity-backed stablecoins Paxos Gold, which represents one fine troy ounce of a London Good Delivery gold bar. Gold has a long track record as being used and held as a reserve asset, so on the face of it creating a public version of Paxos Gold sounds like it might work. But, having a cryptocurrency backed by gold is only worth something if the token can be redeemed for gold bullion accessible by the holder of the token[41].  The only way to guarantee accessibility is to have it custodied within your nation-state’s borders. This means at some stage cross-border physical delivery, at which point there is no substantive difference between using a gold-backed cryptocurrency and gold bullion[42].

This might sound fanciful or far-fetched, but there is historical precedent. In early August 1971 France sent a war ship to New York harbour (physical gold deliveries are expensive affairs) instructing it to bring back gold in the custody of the New York Federal Reserve Bank because of worries about the sustainability of the USD-gold peg[43]. It was prescient action given that on August 15, President Nixon closed the gold window, in effect ending the convertibility of US dollars into gold bullion on demand, marking the birth of fiat money.

Two Down, Two To Go

So having ruled out fiat-backed and commodity/gold-backed stablecoins as meeting the requirements for a crypto-based international monetary system based on an unbannable underlying asset, the two remaining options are algorithmic and crypto-backed.

In terms of algorithmic stablecoins, a few months back one may have considered TerraUSD. Ostensibly, decentralized (albeit not in practice due to the dominance of its creator Do Kwon), it purported to rely on software to maintain its valuation peg to the US dollar. The reality was, however, rather different. The underlying driver of demand for the TerraUSD was more akin to a Ponzi scheme and in May its peg broke wiping out many holders of Terra and its sister token Luna much to their ire (the most recent expression of which is the creation of a meme coin with the unsubtle name of “JailKwon”[44]). Obviously, given such a high profile failure that took out numerous crypto funds and lenders - exacerbating the crypto-winter - algorithmic stablecoins are firmly out of the running as a serious crypto contender, at least for now.

Fork It

Finally, we come to crypto-backed stablecoins. These are stablecoins whose valuation anchor is provided for by over-collateralized holdings of other cryptocurrencies, the best example of which is Dai, a decentralized crypto-backed stablecoin with a market cap of roughly $7bn[45].

Originally Dai was backed by over-collateralized holdings of ETH[46], but during the turmoil witnessed with the outbreak of the Covid pandemic, its infrastructure came under severe pressure and in order to safeguard its peg, its MKR governance token holders voted to extend the list of eligible collateral to include fiat-backed stablecoins. In fact, USDC now constitutes over 50% of Dai’s total crypto-assets used for on-chain collateral[47]. This puts it firmly in the clutches of US government regulators and hence it also must be ruled out as a possible contender (at least unless the majority of its MKR holders vote to remove fiat-backed stablecoins as eligible collateral, something that does not appear to be on the cards any time soon). That said, there is nothing to stop nation-states from forking Dai, and restricting the underlying collateral that can be pledged to decentralized unbacked cryptocurrencies of which the best candidate is, for reasons outlined earlier, Bitcoin.

Obviously, nation-states could also decide to fork Bitcoin as well and create their own public version of it in order to back their crypto-backed stablecoin. However, in my view, there are clear advantages from not doing so. As I noted in my first research note[48]...

“Simply put, whatever form money takes (digital, paper, metal, stone or shells) it requires a network of participants prepared to accept it for economic transactions: no adoption, no network, no value.”

Bitcoin already has an established network of users around the globe, who collectively believe it is worth almost $400bn[49]. As the multitude of Bitcoin forks that have tried and failed to displace the original version all too clearly demonstrate establishing a decentralized monetary network is hard, especially when there is one already in existence. Moreover, initially it would be impossible to determine what value to attribute to a forked public version of Bitcoin and hence its collateral value. Much better, in my view, to stick with the original.

Western Riposte

For countries wishing to conduct cross-border transactions beyond the reach of the west, using Dai-style smart contracts to mint public versions of a stablecoin backed by over-collateralized holdings of Bitcoin seems to be a feasible alternative to the current US-dominated, i.e. centralized, global fiat money system. By design, the resultant cryptocurrency would be trust-minimizing, decentralized – ensuring it is unbannable – with price volatility closer to fiat money.

Obviously, if widely adopted such a system would undermine the role of the US dollar internationally and, as such, also serve to undercut its sphere of economic influence (military influence is, of course, another matter and serves as the ultimate backstop). So, it would be foolish not to consider how the US, or the west more generally, would respond to such a development.

The system’s unbannable by-design aspect means neither the US nor other nation-states can stop other nation-states from using Bitcoin for this or any other purpose. They could, of course, seek to restrict its use within their borders by closing the on-off ramp for Bitcoin, i.e. banning people from exchanging fiat money for Bitcoin and vice versa, in the hope that this would discourage residents from holding Bitcoin. But is that it because, as I stated at the beginning, the regulatory perimeter is much narrower than generally perceived. Even then, enforcing an outright ban would be a logistical nightmare given the ability of users (geographically masked by VPNs) to transact over DEXs using self-custodied wallets that are difficult to associate with personally identifiable information meaning they are essentially anonymous.

Indeed, the US government is already beginning to realize how tricky it is for geographically-bounded nation-states to deal with non-geographically-bounded decentralized entities, as evidenced by their recent attempt to sanction – a virtual cryptocurrency mixer that anonymizes transactions. As the Treasury Department recently clarified[50], the US government cannot even ban the publication of source code within the US despite it being put on the OFAC sanctions list for facilitating money laundering by North Korean hackers. This is because it is protected under the First Amendment after previous US court rulings have deemed source code to be speech[51].

They are not alone in this struggle. China, which banned cryptocurrency ownership in 2021 with sweeping legislation, has failed to stop its residents buying Bitcoin, as noted in a recent tweet from Bitcoin Magazine – see image.

Source: Twitter
Source: Twitter

This suggests the stigma of illegality is not a very powerful deterrent to crypto-adoption. If the populace thinks a decentralized cryptocurrency has value either non-monetary (ensuring financial privacy) or monetary (maintaining its purchasing power), then the government really cannot do much about it because they cannot dictate what people deem to be money. It is not in their mandate.


One of the more frequently heard criticisms of Bitcoin, and blockchain more generally, is that it doesn’t have, or hasn’t yet found, a real-world application – a viewpoint summed up in pithy statements like the one below.


Such criticisms will soon be consigned to the dustbin of history. In a world where international relations are deteriorating and trust between nation-states is falling, cryptocurrencies, particularly Bitcoin, provide a way to facilitate cross-border payments and hence support global trade in an environment of rising geopolitical tensions. They provide a solution to a very real, and important, problem.

Russia may be at the vanguard but unless the leaders of the world’s nation-states are all about to hold hands and start singing Kumbaya at the UN general assembly (not my base-case scenario) then it will not be the last. In fact, there is a real possibility a crypto-based alternative to the current international monetary system goes viral because other nation-states whose economies and reserve holdings which are measured not in millions, or even billions, but trillions of US dollars are also likely to see the benefits of not having to rely on a highly-centralized system dominated by the US.

Obviously Bitcoin’s supply is ultimately capped at 21 million, which may prompt some to believe that it is not a deep enough asset market to support being used at a global scale by nation-states. However, this is a fallacy. Bitcoin can support such usage, it is just at a much higher price than it is currently trading, an outcome that will come to be realized over time because what we are talking about here is not a one-off event but a process that will unfold over the next few years.

A Final Observation

A crypto-backed international monetary system might seem very left-field but let me leave you with this final observation. The above ground stock of gold is estimated to be 205,238 tonnes, of that 17% is held by central banks around the globe as part of their official reserves[52].

Why do central banks continue to own such large amounts of what Keynes famously called a “barbarous relic”?

The reason is because it is perceived as valuable. Its value is derived from the fact it is ultimately finite in supply, requires considerable resource expenditure to mine or financial resources to acquire, and most importantly of all it is outside money meaning its value is not liability based and hence dependent upon the actions of others. Bitcoin has very similar characteristics, just updated for the digital world. Thought about that way perhaps it is not such a crazy idea after all.

Until next time.

Ryan Shea, crypto economist

[1]    See: . Obviously, the most effective way to make cryptocurrency ownership in Russia unattractive would have been to announce an outright ban. However, the problem with this option is that it is impossible to enforce short of cutting off the country’s access to the internet, something that is unfeasible for any length of time. As I noted in my previous article (see: when it comes to cryptocurrencies the regulatory perimeter is much narrower than many people consider. This is why government regulators invariably target the fiat on-off ramp, which I explained in a separate research note – see:

[2]    See:

[3]    To be clear Russia is not considering legalizing cryptocurrencies for domestic payments, just cross-border.

[4]    See:

[5]    See:

[6]    See:

[7]    The Russian prime minister Mikhail Mishustin has given the government until December 19 to reach agreement on cryptocurrency legislation with implementation expected in 2023 – see:

[8]    The idea that the global financial system is in the early stages of undergoing a substantial transformation is definitely not mainstream, but there are some who have the same sense. One of the more notable proponents of this view (albeit with more of a tradfi angle) is Zoltan Pozsar, Global Head of Short-term Interest Rate Strategy at Credit Suisse - see:

[9]    Europe has increased purchases of LNG from China to reduce their reliance on Russia fossil fuels – see: At the same time, China LNG imports from Russia hit a 22-month high last month - . One does not have to be a conspiracy theorist to suspect that what is actually happening is Russian LNG exports are effectively being recycled via China (at a higher cost, naturally).

[10]  Germany has announced it will replace all Russian energy imports but not before mid-2024 at the earliest – see: The notion that two countries that trade do not tend to go to war (even if it is only an economic war) has proved to be patently false.

[11]  A country’s balance of payments, which is the sum of the current account and the capital and financial account, always sum to zero, excluding errors and omissions.

[12]  See:

[13]  This is the US international investment position. Although is also impacted by the differences in the returns on foreign asset and liabilities, it can be thought of as the accumulated current account balance to a first approximation – see:

[14]  Hard to be cross-border otherwise.

[15]  It’s a worthy, if technical read, even though the conclusions are, as one would expect, strongly biased in favour of a system where the central bank remains a dominant player - see:

[16]  Instantaneous cross-border payments, which are being implemented, doesn’t change the complexity – see:

[17]  See:

[18]  See:

[19]  The EU is also coming under pressure to do the same – see:

[20]  Bitcoin is not as often stated trustless because it is subject to risks such as the 51% hash power attack.

[21]  Overcoming the so-called double spend problem.

[22]  For the exact quote – see: See:

[23] Bitcoin’s Proof-of-Work (PoW) consensus protocol ensures this permissionless feature. Proof-of-Stake (PoS) consensus protocols which, after Ethereum’s Merge is the predominant protocol for cryptocurrencies, are instead permissioned in the sense that only users with existing holdings can acquire newly issued tokens. For more details on this – see:

[24]  Something MakerDAO has come to realize and is currently struggling with - see:

[25]  The authors of the working paper also include the critique that the proof-of-work consensus protocol is “inherently expensive and wasteful” because it is less efficient than a centralized system. This is true but we are considering a scenario where trust matters and this rules out centralization as a feature.

[26]  EUR/USD dropped 1.7% and the NASDAQ dropped almost 6% - both relatively big moves - testament to how much of a shock the number was to investors.

[27]  See:

[28]  Although not always. The collapse of TerraUSD earlier this year showed that not all stablecoins are “stable” – see:

[29]  I discussed stablecoins in more detail in previous research notes – see: and

[30]  See:

[31]  Well, they are supposedly fully-backed. However, no stablecoin issuer has yet been subjected to an official audit, only attestations of reserve holdings are provided, despite promises that audits will eventually be forthcoming. This has been a long-standing source of speculation with regards to Tether – the largest fiat-backed stablecoin – see:

[32]  Recall that all transactions, including cross-border transactions, touch the central bank one way or another.

[33]  I discussed this in my last research note – see:

[34]  Yes, not very subtle I know.

[35]  See:

[36]  Again, not very subtle I know.

[37]  We can ignore differences in exchange rates by simply adding conversion factors between fiat and its crypto version.

[38]  This mechanism does not always work perfectly as outlined in the article mentioned in footnote 16.

[39]  The ECB working paper looks at both stablecoins and CBDCs. The latter is the authors preferred choice because they are not concerned with trust issues between nation-states.

[40]  See:

[41]  Gold, along with bank notes and decentralized cryptocurrencies are what economists call outside money. This is money with no associated liability. The alternative is know as inside money, which does have an associated liability and is what forms the majority of what people consider money, namely commercial bank deposits. This is an important distinction, one I covered in a previous research note – see:

[42]  Trading using gold-backed cryptocurrencies with periodic physical “settlement” transfers could minimize the custody risk but it doesn’t entirely remove it.

[43]  France was not alone in such worries. On August 11, The British requested that the US Treasury remove $3bn of gold bullion from Fort Knox to the New York Fed Reserve vault, a clear indication it too was considering repatriating its gold holdings – see:

[44]  The token surged over 250% when the news broke that South Korea law enforcement had issued an arrest warrant for Do Kwon - see:

[45]  It is the largest crypto-backed stablecoin - see:

[46]  Because it runs on the Ethereum mainnet, BTC can be used as collateral for Dai after it was approved by Maker token holders in May 2020 but it has to be wrapped first, effectively bridging the Bitcoin blockchain to Ethereum.

[47]  See:

[48]  See:

[49]  At the time of writing – see:

[50]  See:

[51]  For more details - see:

[52]  Of this total the Fed owns roughly a quarter of the global total, with two-thirds of its official reserves held in the yellow metal - see:

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