The internet is abuzz with news that Saudi Arabia has quit MBridge, the Chinese-led project to forge a competitor cross-border settlement system to the dollar.

The news comes by way of an FT “scoop”, which is being framed as a major Saudi snub against China and a signal that Riyadh is now fully aligned with Washington.

The paper notes that this comes after the FT reported (in a column by Gillian Tett, no less) that Washington previously pressured the BIS to exit the project.

All of that may be technically “not wrong”, but there’s enough journalistic caveating visible in the language to imply something else is going on.

There’s a number of reasons why I say that.

First, it seems Saudi exited a while ago but didn’t put a press release out about it. This hints at a classic PR management op.

Whenever an organisation bigs something up and then quietly backs out, you know the intention is to minimise the public relations fallout. The strategy was deployed by Digital Asset when it dropped blockchain, it happened when the ICO dropped its case against Cambridge Analytica, and it happened with Chinese banks quietly exiting the LBMA. For what it’s worth, I wouldn’t be surprised if it is also happening with the BoE’s CBDC efforts (which nobody talks about anymore).

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I’ve stumbled across some curious intel but it’s for subscribers only. Sorry.

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Finally, The Peg is back!

A lot has been going on while I’ve been on a go slow (due to sadly having to attend to other matters). To get back into the swing of things I’m diving straight in, albeit somewhat sporadically as I still have to get over catch-up mode.

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Back to school is on Sept 2… I plan to get right back to it thereafter. And thank you for continuing your support.

There is much to write about and catch up on!

I was approached by a Wired journalist overnight about Peter Thiel’s neobank Erebor. He’d got a tip that the bank’s financial position as revealed by the latest Call Report was concerning and asked if anything stood out. The assertion was that the bank shows no signs of a viable business model based on the numbers.

I was obviously aware of Erebor, but I’d not thought about it too deeply. Now that I’ve looked at the numbers and structure more closely, a few obvious things stand out. As a rule, I’m really happy helping other journalists out. I don’t mean to front-run this guy on his story but I also want to make sure my subscribers get the skinny on my insights before anyone else.

So this is the gist of what I shared with him. I’ve used AI to streamline my thoughts because it’s still school holidays and time is precious.

On the face of it, there are definitely some weird numbers.

Erebor has about $4.7bn of assets and $4bn of deposits, but only around $77m of net loans. Its efficiency ratio is around 202 per cent, it lost roughly $16m in H1, and there are legitimate questions about both the nature of the deposit base and the fact that most of its book equity consists of perpetual preferred rather than common equity. So if you’re analysing it as a conventional bank, I can see why you might conclude there’s no obvious business model here.

But I think that misses the point.

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From Tether:

I don’t like flagging I’m going away for, err, privacy and security reasons. I’m finally back in the country. But until the jet lag wears off and I catch up on a million other errands, I’m going to keep things light here. Normal ops restart on Thursday.

One tidbit I came across on my travels is that Elon Musk’s aspiration to l…

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Editorial Hello

I like to think I’m pretty switched on regarding matters monetary policy and financial. Turns out, not always so. For unknown reasons, I somehow completely missed that ‘interest rate passthrough’ operates very differently in the U.S. than it does in Europe.

I came to this unfortunate realisation while doing some deep-dive research into PayPal and Stripe. I’ll spare readers how that research connects for now, as it’s a long story. Suffice it to say, the factoid I uncovered totally blew my mind. It’s that even today, with Fed rates at 3.5-3.75 percent, the vast majority of GSIBs offer depositors approximately zero interest.

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The Blind Spot

Monetary Forces with Noelle Acheson & Izabella Kaminska

Listen now

2 months ago · Izabella Kaminska and Noelle Acheson

We talk PayPal, FATF and the new BIS paper on dollarisation and monetary control.

Stripe is officially after PayPal. I, for one, think it will be fascinating to see what the due diligence uncovers if the two ever come remotely close to a deal. PayPal's shares have languished since at least 2021, yet nobody has convincingly explained why one of the original digital payments giants continues to trade at such a persistent discount.

One possibility lies in a part of the business that receives remarkably little scrutiny: the regulated entity in Singapore that holds and invests tens of billions of dollars of customer funds. For a listed company, this reserve structure (which has a striking resemblance to that of a stablecoin) is surprisingly difficult to penetrate — arguably more so than that of some notable stablecoin issuers.

It’s worth remembering that like most stablecoin issuers, PayPal is, for the most part, not supposed to take meaningful maturity or credit risk with customer funds. Yet none of the company’s disclosures or filings explains exactly what assets back its customer balances. The filings disclose a consolidated investment portfolio, but they stop short of identifying which assets safeguard customer funds or where they sit within the group's regulated entities. That remains something of a black box.

Imagine if a stablecoin issuer published only a consolidated balance sheet showing its total cash and investments, without identifying which assets backed outstanding tokens and which funded the business itself. That is broadly the position investors are in with PayPal.

There’s also the question of how much the wider group depends on liquidity sourced through its Luxembourg subsidiary, which operates under a somewhat unique banking license.

For more, be sure to join Noelle Acheson and me for Tuesday’s edition of the Monetary Forces podcast at 3pm UK Time. This week I will be looking at a new BIS paper examining dollarisation lessons from the rise of stablecoins.

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When Jordan Goldman and Mark Lurie set out to solve the Marshall Islands’ banking and settlement problem, they realised pretty quickly the task would require an entirely new category of digital financial instrument. They called what they eventually devised USDM1.

“It’s not a stablecoin, it’s not a tokenized fund share, it’s not a CBDC. It is a fully collateralized USD-denominated sovereign bond,” the duo told The Peg in an interview last week.

The idea could probably only have emerged from the tiny Pacific nation. Despite hosting one of the world's largest shipping registries and being fully integrated into the US dollar, the country has spent years grappling with the retreat of correspondent banking services due to the unique challenges posed by its remote geography.

Those unusual constraints encouraged Goldman and Lurie to follow a different innovation path than most other blockchain founders. While much of the crypto industry spent the past decade trying to recreate money through privately issued stablecoins, they pondered a different question: what if the financial system's foundational asset — the sovereign bond — could itself be brought on-chain to be used as a payment mechanism?

Years later, the result is a state-guaranteed asset that settles continuously like a blockchain token, but retains the same legal architecture, protections and institutional familiarity of traditional government debt.

Goldman and Lurie say these details matter because stablecoins fundamentally remain corporate liabilities, backed by reserves whose legal treatment can be ambiguous and whose holders ultimately rely on the issuing company. CBDCs, meanwhile, remain central bank liabilities requiring entirely new monetary infrastructures.

USDM1, by contrast, is designed to be neither.

Officially, the instrument constitutes a sovereign obligation of the Marshall Islands issued under New York law, fully collateralised by US Treasuries, giving holders direct legal rights over the underlying collateral through a trustee rather than merely contractual claims against a private company.

It is this legal structure that makes the instrument robust, not blockchain, which is only the means of settlement.

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Not to belabour the point, but today’s joint statement by the UK and US on future stablecoin cooperation is probably the most important indicator yet that the UK sees its future within the Donroe doctrine sphere of influence and not that of Brussels. No matter what Labour says.

Here’s the full statement presented without comment:

Editorial Hello

UK Chancellor Rachel Reeves might be on the verge of losing her job under an Andy Burnham premiership, but that doesn’t mean she won’t have the last word on her legacy. This is because, as luck would have it, the Chancellor’s annual Mansion House address to City grandees takes place this evening. Over the years, the black-tie dinner event has become a crucial platform for elevating the government’s financial policy agenda.

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Greetings everyone. Since school holidays have officially begun, I’m initiating a new posting regime for the summer period (all the better to parent responsibly).

The Daily Peg will become the intermittent round-up until September. This should allow me to keep generating original content, while still keeping everyone up to date on the big developments and avoiding too much of this scenario:

Plus, don’t forget, Noelle Acheson and I are still collaborating once a week on the new Monetary Forces podcast. Tomorrow’s edition is at 3pm UK time.

Meanwhile, the trend I highlighted last month is not abating but rather, if anything, intensifying. The chart below shows the amount of circulating supply by stablecoin and comes courtesy of Allium:

For those who watch such things, it somewhat resembles the trend in Chinese crude and product stockpiles. I doubt there’s any meaningful connection between the two, but it is still interesting.

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The Blind Spot

Monetary Forces with Noelle Acheson and Izabella Kaminska

Listen now

2 months ago · 1 like · Izabella Kaminska and Noelle Acheson

Papers and stories discussed:
A unified ledger in practice: lessons from Project Hangang - Hyun Song Shin, via ECB
The Cari Network joins ABA to expand tokenised deposit offering - Asset Servicing Times
Cari Network - Home site
Robinhood Launches Its Own Blockchain, New Stock Tokens And DeFi Products - Forbes
Introducing Open USD - Press release

Editorial Hello

Greetings. We trust all our American readers enjoyed their 250th Independence Day celebrations.

It seems appropriate in light of this milestone — even if it doesn’t look like it based on the political rhetoric out of Labour — that something significant is happening in UK financial services.

Whether the wider market has fully recognised it or not, the UK appears to be steadily moving towards greater alignment with the US.

The Bank of England today announced that it will ease the implementation of the Basel-derived countercyclical capital buffer, opting for a more gradual and flexible approach than many had expected. On its own, the decision may look like a technical recalibration of prudential policy, but in many respects, it signals a greater willingness to calibrate prudential rules in favour of competitiveness. Thus, in alignment with US rather than EU norms.

But there is another development that has received far less attention.

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I am changing the Daily Peg’s title format, as frankly, it’s too embarrassing calling something a daily when it is invariably not a daily. And realistically, while I would LOVE to put this out daily — and continue to aim to do so — the pressure to file it daily distracts from more original, higher-quality reporting and writing.

In other news, you may have seen my quip about what’s really going on with Open USD:

I do feel that gangster street-corner dynamics are the best metaphor for what’s going on with Open USD. However, that’s not to say there isn’t some merit in a model that splits revenue in the Visa/Mastercard tradition. Transparently.

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The Bank of England has confirmed that the UK will become the first major jurisdiction to offer a central bank liquidity facility to qualifying systemic stablecoin issuers, marking another significant divergence between Britain’s digital asset regime and approaches emerging elsewhere.

Speaking at the Stablecoins Unblocked conference in London on Wednesday, Emma Butterworth, who leads financial market infrastructure innovation at the Bank of England, said the UK framework was deliberately designed to combine traditional financial stability tools with a regulatory model familiar to international financial institutions operating in London.

“I think another area where we’ve gone further than any other jurisdiction is that we’ve said that we provide a liquidity facility,” Butterworth said. “For the 70 percent of short-dated government debt, we’ve said actually if stablecoin issuers in the event of stress can’t liquidate in the market, they can come to us and liquidate with us, which again is quite a unique feature of the UK regime. I don’t think any other regimes do that.”

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Editorial Hello

Greetings from the Stablecoins Unblocked conference in the heart of Canary Wharf in London, where I’ve just been moderating a panel about the geopolitics of stablecoins.

It was a topical start given that we learned overnight that Donald Trump has made no less than $1.2 billion by mixing business and politics through crypto and stablecoin investments in 2025.

To no one’s surprise, the discussion focused heavily on the extent to which stablecoins can be used to reinforce the dominance of the dollar. But we also touched upon how more precarious economies can use similar tools to break free from that influence. And why the ECB is so particularly resistant to stablecoins.

I also got to hobnob with some of the companies gearing up to issue GBP stablecoins and get their take on the Bank of England and Financial Conduct Authority’s now finalised regulatory framework. The most surprising thing I learned is that for non-systemic coins supervised under the FCA framework, it isn’t necessarily the win for industry that many are making out.

Yes, there are some clear improvements — for example, the highly draconian requirement for issuers to honour redemption requests of even a single token within 24 hours, while also conducting all the necessary KYC and AML checks, has been greatly relaxed. Companies can now take however long they need to perform the necessary checks. Only once customers are fully onboarded are they obligated to ensure redemptions are honoured on a T+1 basis.

But the 1% capitalisation requirement — which comes beyond the separate requirement to back issued stablecoins 1:1 with reserve assets — still feels stifling, despite having been reduced from 2%.

In general, there was a sense that regulators had deployed an “art of the deal” playbook to win the optics war — i.e., being seen as working with industry, when in practice, their starting point was so onerous that even meeting in the middle on certain rules is still a major win for them.

We’ll have more from the conference later.

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