Editorial Hello:

I’m afraid events over the weekend in Poland derailed my ability to attend to my vibe-coding errors.

The big news today is that the CFTC has signalled that registered US venues may be able to list perpetual futures on individual stocks, potentially importing a crypto-native derivatives structure into supervised American markets. The move points to a potentially important shift in market design, leverage and clearing, that The Peg has been predicting for a long time.

Meanwhile, tokenisation activity in Switzerland continues to broaden beyond dollar-linked instruments. Safirum, a Zug-based fintech, has launched CHF-S, a permissioned Swiss franc stablecoin on Solana in which only identified users may hold the token and only institutional investors may issue it. Having spoken with one of Frankencoin’s founders this summer, I am aware of the challenges of operating a Swiss Franc stablecoin. We’ll have more on that shortly.

Another emerging theme is growing recognition in the academic and central banking space that stablecoins do not necessarily generate cost savings in their own right, but rather transfer costs elsewhere. This is arguably the equivalent of sweeping the dirt under the carpet and hoping nobody notices. Moreover, the real-time nature of these systems increases demand for settlement liquidity, something that is usually addressed with prefunding, adding even more expense.

Read more

Following the success of last year’s stablecoin dinner, The Peg invites you to a very special evening with Tom Hayes, the former trader whose landmark Supreme Court victory in 2025 paved the way for the overturning of six further LIBOR and EURIBOR convictions in October 2026, and Andy Verity, the investigative journalist and author of Rigged, whose reporting helped challenge the official narrative surrounding one of the biggest financial scandals of modern times.

This won’t be a conventional panel discussion or another crowded City networking event. With just 35 places available, the evening is designed to encourage genuine conversation, informed debate and the chance to engage directly with the speakers in a relaxed and convivial setting.

For anyone who worked in financial markets during the LIBOR era, followed the prosecutions or has an interest in the intersection of finance, law and institutional accountability, this promises to be a fascinating evening.

‍The evening will include:

Welcome drinks and canapés.

A premium fine-dining experience specially prepared for the occasion.

A short talk by Andy Verity about his book Rigged and the extraordinary story behind the LIBOR prosecutions.

An in-depth conversation with Tom Hayes and Andy Verity, moderated by Izabella Kaminska.

An open Q&A, giving guests the opportunity to put their own questions directly to Andy and Tom.

A book signing with Andy Verity.

This is an intimate affair by design, so book early to avoid disappointment. Tickets are available here.

More info about Rayuela here.

I will spare you the sad story of my agentic woes. There’s too much else going on! Notably, the Binance hack.

Read more

I will be back with a manually compiled version of the newsletter tomorrow.
The context is here:

Read more

Editorial Hello

My AI-assisted system is working now, so unless it backfires (fingers crossed), I will spare you the constant updates about how it’s faring from now on. I want to emphasise that while this means I am using AI to help me compile the “Pegged” newsletter — something I wish to be transparent about — it certainly does not mean the newsletter is entirely AI-generated.

I will continue to draft the editorial hello by hand. I will also continue to add stories that pass my AI filters by. Furthermore, I will continue to add my analysis and opinion. And, of course, I will continue to generate unique content for the broader site, independent of the Pegged aggregation newsletter. Indeed, the whole point of turning to AI for this element of the service is to free me up to do more human-generated journalism elsewhere.

Hope that makes sense!

Read more

Editorial Hello

Welcome to Day 3 of the great AI-assistance experiment. Today’s workflows were, in part, a huge success and, in part, a total disaster. I’ve been tinkering most of the day to fix the unfortunate self-referencing bug that somehow emerged — something that has given me some useful insight into what it must feel like to be a developer. Or so I would like to think.

Beyond that, Liz Truss’s new book “Bank Job” is worth a quick mention. It has drawn a flurry of brutal reviews. I’m not sure how much of that is fair criticism, so I’ve decided to read the book first before commenting further.

Meanwhile, for a flavour of what went down in Lugano this weekend at Tether’s Plan B forum, check out the official X feed here:

Read more

Editorial Hello

Howdy everyone. Welcome to Day 2 of the great AI-assisted compilation experiment. Today’s edition wasn’t as frictionless as I had hoped, but hopefully a few “vibe coding” refinements should ease the process by next week. As a reminder, this editorial bit is human written.

Today’s lead story is that a former Circle engineer is suing the Trump family and Steve Witkoff, alleging that their World Liberty Financial (WLF) stablecoin business violated the Foreign Emoluments Clause. That’s the provision of the US Constitution designed to prevent foreign governments from buying influence over American officials through gifts, payments, titles or other financial benefits. The lawsuit centres on two UAE-linked transactions, including the use of WLF’s USD1 stablecoin to facilitate a $2 billion investment in Binance.

Readers, however, may remember that WLF is already embroiled in a separate, substantial lawsuit brought by Justin Sun, the Chinese-born cryptocurrency billionaire and founder of the TRON blockchain. That dispute concerns WLF's decision to freeze his WLFI tokens, and it has escalated into competing lawsuits.

None of this is good. However, I can’t shake the admittedly crazy thought that the brazen grifting in plain sight serves a secondary purpose, whether intentionally or not.

Consider the following: If a new Bretton Woods agreement were to be structured today, how would international powers go about it? Could it really, in the digital era, be done the way it was done in 1944? Or would you need the core structures beta-tested and market-tested within the constructs of some sort of digital sandbox, with real but limited capital allocated to the experiment?

More on where I’m going with this in the “deep thoughts” section beyond the paywall:

Read more

Welcome to the first day of the AI-assisted Peg newsletter.

Today’s top story: The US stablecoin regime has moved closer to full implementation after the Office of the Comptroller of the Currency finalised rules under the GENIUS Act, effective January 18. The package sets out standards for reserves, redemptions and risk management, while leaving open questions over application timing, the treatment of third-party rewards and how existing issuers can continue operating pending approval. Those transitional issues are emerging as an early fault line in the new framework.

Also worth your attention: the BIS working paper by Wenxin Du, Catherine Huang and David Scharfstein, which challenges the notion that stablecoins have unearthed a fundamentally new cost structure for cross-border payments. Turns out, they mostly shift the costs elsewhere.

Finally, Tether’s annual Lugano retreat begins tomorrow. Alas, I won’t be there this year. But I will continue to track events remotely.

Read more

Today’s note is a reader update to explain why my usual aggregation email has basically gone AWOL the past few months. It’s not that I haven’t been compiling it. I have. I’ve just found it increasingly difficult to turn it around quickly enough to keep it relevant. There are what feels like a thousand unfinished drafts in the back-end of The Peg, that never quite made it to publication.

It reminds me of the Sphinx Gate in The Neverending Story. In the film, the sphinxes judge whether someone is worthy of passing. My drafts are like the knights who try to pass the gate but continuously fail to make it.

The film never explicitly reveals what makes someone worthy.

But as I commented on X the other day, “the problem of our time is not merely information overload. It is that the time required to construct a coherent understanding of reality is becoming longer than the time during which that understanding remains valid.”

The production of this email was one of the factors that inspired that comment!

On average, it was taking me a good 3 hours (depending on the day) to find all the links, read all the stories, absorb all the reports, and then another 2-3 hours or so to put them all together and structure original thoughts around them. In recent weeks — I suspect due to the growth of AI-assisted output — that process has only been extending.

That’s why I have finally bitten the bullet and resorted to throwing AI at the problem myself. I have spent the past few weeks vibe coding my own AI-assisted aggregation mechanism. The idea is that it will do most of the heavy lifting with collation and aggregation. I will then add value by including my original thoughts where relevant and/or links that passed the system by, identified through old-school journalistic processes.

This should, in theory, free me up to do more original content, without limiting my exposure to news and developments — vital to maintaining an expertise — since I will still be editing the AI output.

I hesitated to go down this path before because I worried subscribers would not see value in an AI-aggregated newsletter. But I have decided that AI-assisted output is better than none (the alternative increasingly was writer-overwhelm-induced paralysis)!

The value proposition, as I see it, is as follows. While any of you could, in theory, go through the same vibe-coding process to produce an equivalent newsletter … configuring it to the same standard would take a significant time investment. Moreover, catering to unknowns unknowns versus known unknowns is not easy to control for. A good overview requires more than asking the AI to scrape the internet for stablecoin news. It requires expert insight and guidance on where to look, and access to private correspondence from sources and contacts. That’s journalism. My AI-assisted newsletter will thus blend all these expert-guided inputs together. It will then add even more value by having me refine and edit the final output, while adding my own insight where it is relevant.

The economics should also make sense. Generating a bespoke AI-generated newsletter of this complexity costs tokens. Network effects and division of labour, however, create an arbitrage opportunity. In theory, it should be far cheaper for readers to access the newsletter at my subscription fee (which also gives them access to all the other original content I produce) than try to restructure it on a bespoke basis themselves.

So that’s what to expect. Until then, here — for my own peace of mind and completeness — is the final amalgamation of all drafts that never quite made it the past week:

Read more

A week ago, Poland’s parliamentary Committee on Constitutional Accountability voted to recommend that central bank governor Adam Glapiński be brought before the State Tribunal, advancing an effort backed by Prime Minister Donald Tusk’s governing coalition to hold him accountable for alleged misconduct during his tenure.

The allegations include misleading the finance ministry about the National Bank of Poland’s 2023 profits and indirectly financing government deficits through bond purchases during the pandemic. Glapiński denies wrongdoing (and FWIW I think he makes a good case).

To the international observer, the saga probably looks like a bitter domestic political dispute of little global consequence. A petty parochial affair.

But investors really should pay attention. The consequences could have graver implications for international monetary stability and the geopolitical order than many appreciate.

To understand why these developments are potentially explosive, it’s necessary to run readers through the political backstory.

Poland is currently run by a centre-right ruling coalition led by Donald Tusk’s Civic Platform. The party gained power in 2023 on the explicit promise its leaders would conduct sweeping purges of the previous right-wing government, known as PiS (aka the Law and Justice party), across Polish institutions. PiS are best thought of as Poland’s equivalent of MAGA: nationalist capitalists who distrust both the EU and Russia. The Civic Platform, on the other hand, sees itself as a liberal force for good, and is closely aligned with the EU.

The two sides have been at war for a long time. Most of the time, the right wing accuses the “centrists” of being assets of foreign interests (Russia and Germany mostly), and the centrists accuse the right wing of (checks notes) being assets of the Russians. A key point of dispute concerns PIS’s historic reform of Poland’s courts, notably the Constitutional Tribunal, which the EU and international community deemed a breach of the rule of law, a fact that led to the freezing of billions of euros of EU payments as a penalty.

Mainstream coverage, however, often neglects the Court’s unique history.

The Tribunal was created in 1982 as a conciliatory gesture by the incumbent communist regime to address the rising political clout of Poland’s anti-communist Solidarity trade union. Just before communism fell, the communists used what power they still had to stack the court with lifetime appointees sympathetic to their regime and ongoing interests.

The idea that the court was never fully purged of communist influence underpins the right-wing claim that, by 2015, when PiS first gained power, the Court needed significant reform and lustration. The mechanics of how they achieved this and why their actions were dubbed “democratic backsliding” by the EU are explained here.

The communist legacy aspect, however, is rarely addressed in mainstream coverage, despite being central to the conservative diagnosis of what was wrong with the Polish state and the courts to begin with.

Indeed, everything makes considerably more sense when viewed not simply as a struggle between democracy and authoritarianism, but as a conflict between two different understandings of what happened when Poland emerged from communism in 1989.

One understanding, associated with the Tusk liberals (which includes Radosław Sikorski, aka Mr Anne Applebaum), regards the post-1989 constitutional settlement as a historic achievement: Poland established an independent judiciary, protected judges from political interference, and gradually consolidated democracy.

The other, associated with PiS and the wider Polish conservative tradition, sees the transition as fundamentally incomplete. Poland democratised its political institutions but allowed substantial continuity within the judiciary, bureaucracy, economic establishment and other institutions.

It’s worth emphasising that Poland’s communist regime did not collapse through a complete revolutionary replacement of its institutions.

Instead, the transition began with the 1989 Round Table negotiations between the communist authorities and the Solidarity opposition, producing a partially free election and a negotiated transfer of political power.

The settlement helped avoid political violence and enabled a relatively peaceful transition. But it also meant that much of the existing state apparatus remained in place. Indeed, former communist party members such as Aleksander Kwaśniewski and Leszek Miller were back in power within a few years.

This was particularly consequential for the judiciary.

Unlike a legislature, which can be replaced through elections, the judiciary depends on continuity, professional qualifications, security of tenure and protection from political removal. Those features are essential to judicial independence. They also make it difficult to replace an inherited judicial establishment, all the more so when former communists are still part of the political system.

Significantly, in the war between the two sides, the EU openly sided with the liberals.

The result saw Poland formally penalised by Brussels, with EU funds withheld as punishment. Poland was also formally accused of democratic backsliding and the breakdown of the rule of law.

Tusk’s appointment in 2023 led the EU to unlock some of these funds on the understanding his government would reconstitute the court’s independence.

Thus far, however, this has not happened because the right wing has maintained control of the Presidency and its veto power. It is also significant that the President, Karol Nawrocki, is on particularly good terms with Donald Trump.

Pathway to monetary chaos

The governing coalition’s political pursuit of Glapiński comes in the context of this longstanding judicial dispute. But it is also directly impacted by it because the contested Court ruled in 2024 that any proceedings against the NBP governor require a three-fifths majority in the Sejm, rather than an ordinary absolute majority, to proceed. The Court also rejected the provision that would automatically suspend Glapinski upon his referral to the State Tribunal.

The numbers matter a lot. In a 460-seat parliament, three-fifths means 276 votes, while an absolute majority, assuming all members participate, means 231.

The governing coalition may therefore be able to assemble sufficient votes under one interpretation of the law but not the other.

The current parliamentary schedule indicates Glapinski is likely to face such a vote on November 5-6.

If the trial proceeds on an absolute majority basis, Glapiński could, in theory, argue that the referral is constitutionally invalid and that he remains entitled to exercise his powers at the NBP. However, the government could also maintain that the proceedings are lawful and that he should be suspended.

Most likely, neither side will recognise the other’s position.

That opens the door to Poland finding itself not only with a disputed central-bank governor but competing claims over the legal authority of the institution itself.

For a central bank, this is a particularly dangerous form of uncertainty. As we all know, monetary policy depends on the assumption that the authority issuing instructions is legally recognised and that its decisions can be implemented without challenge.

Once that assumption becomes contested, the dispute can travel beyond the domestic constitutional system.

The relevant questions cease to concern only whether Glapiński should remain in office. They begin to concern who can convene the Monetary Policy Council, who can authorise operations, who can move reserves, and whose instructions foreign financial institutions should accept.

The dates that matter

The first significant date is November 4.

That is when the term of Adam Lipiński, the NBP’s remaining deputy governor, is due to expire. Unless a new appointment is made, the central bank’s management board will fall from seven members to six, which is below the statutory minimum.

Under Article 17 of the NBP Act, the management board consists of the governor and between six and eight additional members.

The problem is not merely that the bank would have fewer senior officials. The law does not clearly establish the consequences of a board operating below its prescribed composition.

Moreover, the vacancies are not accidental. Appointments to the board have become part of the political confrontation, with Tusk rejecting candidates proposed by the bank until Nawrocki stops vetoing the government’s judicial appointments.

On the same day, the Monetary Policy Council is also scheduled to announce its next interest-rate decision.

And herein lies another problem. While the NBP management board is not responsible for conducting monetary policy decisions, it is responsible for implementing its resolutions and overseeing important operational functions.

For now, it is unclear to what degree the MPC may be stunted by Glapinski’s removal.

In a Bloomberg report published on October 10, Monetary Policy Council member Ludwik Kotecki said that the NBP would continue functioning without Glapiński. He also indicated that council members could make monetary-policy decisions using their own expertise and analysis, even without documentation from the management board.

However, Kotecki is not a neutral figure. He is an appointee of the ruling coalition and thus naturally aligned with the Tusk camp, not Glapinski.

Moreover, even if Poland’s ability to set interest rates is uninterrupted, the more difficult question concerns implementation of such policy, which still requires board approval.

For example, could a board operating below the statutory minimum validly approve an extraordinary liquidity measure? Could it authorise a significant intervention in foreign-exchange markets? Would counterparties accept its decisions without seeking additional legal assurances?

Given the Glapinski case is centred on claims he failed to follow due process, the optics of subsequently breaking the rules would not be great.

There is also a separate procedural question surrounding the Monetary Policy Council itself.

Kotecki warned that Glapiński’s suspension could complicate the convening of meetings. Although council member Ireneusz Dąbrowski has been designated to preside in his absence, the lack of a first deputy governor and the expiry of the second deputy governor’s term create uncertainties around the institutional arrangements for convening the council.

The third important period is the first part of November, when parliament could potentially consider the State Tribunal referral.

If the vote occurs after November 5-6, which will likely be the case, the NBP management board could already be below its statutory minimum. This could produce a contested suspension of the governor.

In that circumstance, the central bank would face two different problems simultaneously: uncertainty over the composition and powers of the body responsible for implementing monetary policy, and uncertainty over the identity of the person legally entitled to lead and represent the institution.

This would be unprecedented in the European monetary system.

What happens from here on is far more did difficult to predict. But here are some scenarios:

Scenario one: the constitutional dispute is contained

The least disruptive pathway is that Poland’s institutions find a way to avoid a direct confrontation.

For example, the government could agree to appointments that restore the NBP management board to its required composition, and Nawrocki could yield on Tribunal appointments. Alternatively, Parliament could delay the referral, fail to secure the necessary votes or proceed in a manner that does not produce an immediate suspension.

The legal consequences of a referral could also be clarified before they interfere with the bank’s operations.

In all these scenarios, the central bank could continue functioning at both the Monetary Policy Council and board level.

The political dispute would remain bitter, but the financial consequences would hopefully be limited.

While it’s important not to dismiss this outcome, I personally don’t think it’s very likely.

This week alone there were clashes between right-wing protestors who had forged a human ring around the Tribunal building and the police. This came after the government went ahead with swearing in a government-selected judge without Nawrocki’s approval:

Scenario two: Poland develops two competing interpretations of central-bank authority

The more consequential scenario begins with a parliamentary vote that the government considers sufficient to refer Glapiński to the State Tribunal but that Glapiński and his supporters regard as constitutionally defective.

The government could maintain that he has been suspended.

Glapiński could maintain that he remains governor.

The central bank might continue to operate through its existing staff and procedures, but decisions requiring new legal authorisation could become contested.

The immediate market reaction would depend on whether investors believed the dispute could be contained without impairing monetary operations. Polish bonds, however, are already the worst performing in the EU after France.

Nonetheless, if routine business continued, the initial consequences might be modest.

But the situation could become more serious if the NBP needed to undertake an exceptional operation.

Imagine, for example, that the zloty (already significantly depreciating) came under pressure while the bank’s management board remained below the statutory minimum.

The Monetary Policy Council might agree that intervention was desirable. Yet questions could arise about whether the management board possessed the authority to approve the necessary transactions.

Now add a dispute over the governor’s status.

A foreign counterparty might receive instructions from an NBP official whose authority the government contests, or from an acting official whose authority Glapiński contests.

Would that counterparty execute the transaction?

Would it seek a legal opinion?

Would it wait for clarification from the Polish courts or European institutions? Nobody knows.

Scenario three: the ECB becomes the arbiter of Polish monetary legitimacy

At this point, the confrontation could move beyond Poland. While Poland is not a member of the euro area, the NBP does belong to the European System of Central Banks.

As it stands, the ECB has already warned about the implications of proceedings against Glapiński for central-bank independence.

Article 14.2 of the Statute of the European System of Central Banks and of the ECB establishes protections against arbitrary dismissal and provides a route for judicial review before the Court of Justice of the European Union. In theory, that means on the same basis that the ECB spoke out against Trump’s political pursuit of Jerome Powell, it would have to speak out in favour of Glapinski.

This could put it in a bit of a bind, since it would be openly going against the wishes of the EU.

Indeed, if the ECB defended Glapiński against a suspension it considered incompatible with European law, the Polish government could accuse it of interfering in a domestic constitutional process.

On the other hand, if it accepted a contested suspension without defending the relevant safeguards, this would undermine the principle of central-bank independence that underpins its own institutional legitimacy, not least because many of the things Glapinski is accused of also apply to other EU central bankers.

This could damage its credibility.

That is where the story begins to resemble situations Europeans generally assume cannot happen within the EU.

The Libya analogy: surely not in Europe?

Libya provides a useful historical analogy.

Following the collapse of the previous political order, competing centres of authority emerged, with disputes over the control and legitimacy of state institutions and financial resources.

The relevance is not that Poland is comparable to Libya in its political stability, institutional capacity or economic circumstances.

It is that competing claims to monetary authority create a problem that cannot always be resolved within the country concerned.

International counterparties must decide which authority they recognise.

A central bank can claim ownership of assets, but its ability to move those assets may depend on whether foreign custodians accept the instructions of the people claiming to represent it.

A country can possess monetary reserves without enjoying uncontested operational control over them.

For European policymakers, the assumption has long been that such questions belong to countries suffering state breakdown, civil conflict or international isolation.

But what if a major European economy found itself with a central-bank governor whose authority was recognised by some institutions but disputed by others?

The Venezuelan gold dispute offers another instructive precedent.

During the confrontation over the legitimacy of Venezuela’s government, access to bullion held at the Bank of England became entangled in British recognition policy and litigation over who was authorised to represent the Venezuelan central bank.

Given how much gold Poland has been buying of late, the custodian of this gold could end up with significant influence over how things evolve at the NBP. For the most part, Poland holds its gold in secret locations at home, but a significant chunk is also held in the BoE vaults too. The Venezuela precedent therefore is likely very relevant.

Why Europe’s wider financial position matters

The possibility of such a dispute arising within the EU would be troubling under any circumstances.

It is even more consequential when viewed against the deteriorating fiscal position of major euro-area economies, particularly France.

France’s public finances have become an increasingly important source of concern for investors and European policymakers.

The ECB must maintain monetary credibility across a currency union whose member states retain their own fiscal policies and whose governments face very different political constraints.

That makes the consistent application of monetary rules especially important.

If the ECB were drawn into a Polish constitutional confrontation, its actions would be judged not only against the legal protections for central-bank independence but also against its handling of political and fiscal pressures elsewhere in Europe.

A perception that Frankfurt was willing to take a forceful position against a Polish national institution while accommodating pressures from larger euro-area governments could become politically explosive.

The issue would be whether European monetary institutions were perceived as applying their principles consistently.

A Polish confrontation could therefore become a broader argument about the political foundations of the European monetary order.

At the same time, the geopolitical environment is becoming less predictable and Poland sits at the centre of many of these tensions.

It is an EU member state, a NATO member, a major actor on Europe’s eastern flank and a country that retains its own currency. It is also in talks with Donald Trump about the establishment of US bases on its territory.

That means, while its financial relationships are embedded in European institutions, its security relationships are deeply connected to Washington.

If a Polish constitutional dispute became a confrontation between national and European institutions, differences between American and European strategic priorities could affect the available pathways.

Scenario four: the ECB sides with the EU’s political institutions

The most politically consequential scenario for Europe would arise if the ECB recognised the position of the Tusk government and the EU’s political institutions over the competing claims of Glapiński and his supporters.

At this point, the precise legal circumstances would matter. A decision grounded in an authoritative court ruling is not the same thing as a discretionary political endorsement.

But perception still makes a difference.

If a substantial part of Poland’s political establishment came to believe that the ECB had subordinated central-bank independence to the preferences of Brussels or the governing coalition, the consequences could extend far beyond Glapiński’s tenure.

The principle at stake would be whether European monetary institutions protect national central banks from political interference or determine which domestic political authorities are entitled to control them.

For the ECB, the distinction would be crucial to its credibility.

Moreover, for Polish eurosceptics, an intervention perceived as political could provide a powerful argument against deeper monetary integration.

Poland is currently committed under its EU accession framework to eventual euro adoption, although it has no agreed timetable.

Until now, the debate over joining the euro has largely revolved around economic convergence, exchange-rate flexibility, monetary sovereignty and the costs and benefits of membership.

A confrontation over the NBP could introduce a different consideration.

Scenario five: a rupture in euro access, but not dollar access

The most extreme scenario begins with a prolonged breakdown in the relationship between a Glapiński-led NBP and European institutions.

Suppose Glapiński continued to assert his authority despite a contested suspension.

Suppose European institutions recognised a different leadership or imposed legal and operational constraints on dealings with the NBP officials they did not recognise.

And suppose the resulting confrontation impaired access to particular euro-denominated settlement or liquidity channels.

Would Poland necessarily lose access to the dollar system as well?

Not automatically.

The euro and dollar systems operate through different legal jurisdictions, institutions and correspondent networks.

This distinction becomes particularly important if Washington and Brussels approach the Polish confrontation differently.

For one, Poland is not in the euro area, and the NBP’s relationship with the Eurosystem is not equivalent to that of a euro-area national central bank.

Nor is access to TARGET services the same thing as the ability of Polish commercial banks to maintain euro correspondent accounts or conduct euro transactions through other intermediaries.

There is, as far as I know, no single ECB switch that can simply turn off every euro transaction involving Poland.

A serious restriction would have to arise through specific legal, regulatory, correspondent-banking or operational channels. But this would amount to declaring war on Poland.

It would be an extraordinary escalation, and one that would impose costs on European counterparties as well as Poland.

But let’s nonetheless imagine that certain euro channels became restricted or unreliable while dollar relationships remained available.

Polish institutions might then seek to reroute some international transactions through dollar correspondent banks, dollar-denominated funding markets or other instruments capable of transferring dollar claims.

That would create a remarkable asymmetry.

An EU member state could find itself relying more heavily on the dollar because of a breakdown in its relationship with parts of Europe’s own monetary infrastructure.

Such an outcome would have implications well beyond Poland. The optics would be terrible.

It would raise questions about the euro’s role as an international currency and the extent to which access to its infrastructure could become conditional on political or institutional recognition.

It could also create an opening for monetary arrangements that operate outside conventional euro settlement channels, such as, you’ve guessed it: stablecoins.

Gold-backed assets and liabilities

Finally, gold could provide another component of such an adaptation.

The NBP is well known to have accumulated substantial bullion reserves. In a severe confrontation over European monetary access, those reserves could acquire a different strategic significance.

One possibility would be to use gold as collateral for new forms of transferable liabilities.

These could be gold-denominated claims, dollar-denominated instruments backed by bullion, or hybrid arrangements combining gold collateral with digital settlement mechanisms.

Moreover, this isn’t as rogue an option as it might be in the US. Glapinski and Nawrocki have already publicly floated the idea of using unrealised gold profits to fund a separate “sovereign” defence programme focused on US arms procurement. This went nowhere because the plan required the government’s sign-off, which was not forthcoming. The Tusk government preferred to commit Poland to Europe’s SAFE programme, which is centred on buying EU arms.

A formal schism between the government and the President (who is officially commander of the military) could change those dynamics.

Concluding thought

Poland’s constitutional confrontation may ultimately be resolved without a serious interruption to the NBP’s operations.

The Sejm may not vote in the indicative November window. Appointments may restore the management board to its statutory composition. A legal or political accommodation may prevent a contested suspension.

But the underlying vulnerability is clearly already visible. It’s worth being prepared for anything, including the previously unthinkable.

The NBP’s view

Moments after posting the above I found the below in my inbox. The NBP clearly disagrees with Kotecki regarding the MPC’s potential capacity to continue operations without the Governor.

Frankly, I am at a loss for words. Perry wasn’t just a formidable monetary thinker, he was a uniquely kind and warm soul, who was always unbelievably generous with his thoughts and time. It’s why so many people considered him a mentor. I was privileged enough to hang out with him and to benefit from his insights.

In fact, he was the first person I properly geeked out with about the rise of stablecoins and the fact they were akin to the second coming of eurodollars.

The irony is I was planning on bigging him up in a post today, long before I heard about his passing.

This is because Inaki Aldasoro of the BIS coincidentally pubilshed an academic paper today drawing heavily on Perry’s work. It was flagged to me beforehand, so I had an inkling of what to expect.

And, of course, it hasn’t disappointed.

In honour of Perry, I am just going to present some key passages without comment, as they speak for themselves.

I already told Inaki I think this is the best paper on the nature of money that I’ve ever read. And not to diminish Inaki’s own contribution (as he too is a great thinker) but as his own footnote in the paper says:

So without further ado, here is arguably the best synthesis of the money view ever committed to a BIS portal (with my emphasis):

And the conclusion is fairly fantastic too:

I will revisit the section on stablecoins specifically in a separate post. For now, a moment’s silence for Perry…

I, like everyone else in the geeky monetary plumbing community, will miss you immensely.

The photo below was taken on October 19, 2017, the day Perry and I first discussed the rise of stablecoins at a conference in Edinburgh:

I keep an active diary of relevant monetary events here. To remind readers that I update this regularly, I thought I would take advantage of the IMF/World Bank to send out this week’s schedule (and beyond), manually. [Davos in the Desert is still scheduled to go ahead, but I wouldn’t be surprised, given the attacks on Riyadh airport, that this is eventually cancelled.]

This week’s IMF and World Bank Annual Meetings are in Bangkok. They are likely to be dominated by a central question: how policymakers can sustain global economic growth while managing a combination of persistent inflation, mounting public debt, geopolitical instability and rapid technological change.

Scheduled discussions include AI’s impact on employment and productivity, mobilising private capital for development, climate finance and debt sustainability. Central-bank sessions will examine monetary-policy challenges, while Friday’s programme features a discussion between IMF Managing Director Kristalina Georgieva and Federal Reserve Chair Kevin Warsh, alongside panels on AI and cyber risks. The Development Committee meets Thursday, followed by the annual plenary Friday and IMFC meeting Saturday.

Read more

The FSB, aka the Financial Stability Board, (not the Russian secret services) has issued a new report highlighting significant gaps in the international regulation of dollar stablecoins, but stopped short of recommending new restrictions on their cross-border circulation.

The FSB said stablecoins now represent a roughly $300 billion market, with 99% pegged to the US dollar. It warned that differences between national regulatory frameworks, particularly in the treatment of foreign-issued stablecoins, have created opportunities for regulatory arbitrage.

Read more

Apologies. It’s been a while. I’ve been AWOL as I had the opportunity to hang out with smart, stablecoin-minded people like Brent Johnson while touring Jekyll Island, Georgia, USA. How could I say no?

I recommend the tour if anyone is in the area. I did not appreciate, until I went there, that Jekyll Island — where a bunch of banking elites famously got together in 1910 to hatch the plan to create the Federal Reserve — was a private members’ club that just happened to be based on the island. I always thought it was a hotel.

On the contrary, when Nelson Aldrich, Piatt Andrew, Henry Davison, Arthur Shelton, Frank Vanderlip and Paul Warburg arrived there to plot the details of the so-called Aldrich plan in the aftermath of the 1907 panic, it functioned mostly as the private winter residence of a handful of influential and rich American families, among them JP Morgan.

In other news, I’ve tweaked the calendar so it’s now far more comprehensive. Do check it out.

Read more

Editorial hello

Short and sweet today as I’m in news-gathering mode. I would, nonetheless, like to flag George Pantelopoulos and Paul Wessels’ paper on The Alchemy of Fungible Money. It originally came out in August while I was off. The summary and link are below.

Essentially, the authors argue that par value is necessary but insufficient to assure fungibility. This is because two forms of money can trade permanently at 1:1 and still not be genuinely fungible. For example, when people lose trust in one issuer over another, or when one system gets hacked or forged, and the other does not. This, in turn, implies that fungibility is contextual and can change without the exchange rate changing. Or as the authors put it: “fungible money is in reality akin to alchemy, since means of payments are not fungible in an absolute sense, but in a practical sense”.

The same obviously applies to conventional deposits and is why deposit insurance was invented (to lower information sensitivity).

And herein the authors make a more controversial point: based on current legal opinions, it’s not necessarily clear whether tokenised deposits qualify as commercial bank money claims in the same way conventional deposits do. As a result, it’s unclear if holders are eligible for deposit insurance. If that’s true, that’s a pretty big problem for rampant take-up.

Read more

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).

Read more

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

Read more

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.

Read more

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.

Read more