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

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14 days 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

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a month 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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Editorial Hello

The ECB’s annual get-together in Sintra, Portugal, kicked off yesterday in entirely pleasant atmospheric conditions of about 26 degree-celsius. The focus for us will be tomorrow, when the ECB’s Piero Cipollone chairs a panel with Bank of Korea Governor Hyun Song Shin on the challenges and opportunities when money, payments and financial transactions become digital.

Wednesday is also the day the Fed’s new chairman, Kevin Warsh, descends on the forum to offer his two cents on monetary policy and central bank balance sheet reform. He will be speaking on a panel with the ECB’s Christine Lagarde, the BoE’s Andrew Bailey and Bank of Canada’s Tiff Macklem.

In the meantime, don’t miss Noelle Acheson and me discussing the latest in ‘Monetary Forces’ today at 4pm CET.

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Editorial Hello

The rest of the BIS’ annual economic report came out on Sunday. While the majority of the newly released chapters do not strictly pertain to stablecoins, they still offer important insights into the degree to which FX swaps are mitigating dollar liquidity mismatches.

“When FX swaps are not rolled over, asset managers must source dollars to close positions, which can trigger dollar funding strains,” the report observes. The BIS concern is that over the past few years, it’s non-bank financial institutions (asset managers, pension funds, insurers, hedge funds) that have come to play a much larger role in dollar intermediation.

The report comes as China’s PBOC officially began conducting monetary policy through overnight reverse repos for the first time. Until now, the Bank has preferred to conduct monetary policy-related interventions through 7-day reverse repos. But Governor Pan Gongsheng warned at the Lujiazui Forum on June 17 that the PBOC wants to improve control over very short-term interest rates by narrowing its interest-rate corridor and expanding overnight operations.

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Editorial hello

It’s too hot for commentary today. Sorry! Hope everyone has access to an air conditioner.

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Former Federal Reserve governor and Trump economic adviser Stephen Miran first laid out the need to tackle global imbalances with creative solutions in a November 2024 paper for Hudson Bay Capital.

In the piece, Miran floated several ideas as to how. The preferred remedy was clearly set out as the application of tariffs. But the paper also talked about the role a multilateral currency accord among the countries with the most-traded currencies could play in achieving similar outcomes — providing, that is, such parties could agree to coordinated action. For what it’s worth, Miran doubted either Europe or China would ever be willing to collaborate.

On the contrary, he stressed, it would likely take a series of punitive tariffs for either to entertain such notions. Nonetheless, since “accords are typically named after resorts where they are negotiated, like Bretton Woods and Plaza,” Miran noted, somewhat whimsically, that if such an agreement were to arise, one could refer to it as “the prospective ‘Mar-a-Lago Accord’”.

Three months later — once it was clear Miran would likely be joining the Trump advisory team — that same paper suddenly took on a life of its own. It began to circulate furiously among the financial press as an indicator of Trumpian administration thinking. The media and the economic community were predictably unimpressed. Almost immediately, everyone fixated on the Mar-a-Lago Accord component, while ignoring the larger framing. Most dismissed it as a ludicrous idea, deriding Miran for ever having floated it.

Ironically, the name ‘Mar-a-Lago Accord’ hadn’t even originated with Miran. He had taken inspiration from a note by former Credit Suisse wunderanalyst Zoltan Pozsar.

Given that the paper wasn’t advocating for a currency accord as its preferred option, it’s amazing, in hindsight, how much breathless commentary the idea inspired from the world’s top economic minds.

The Banque de France’s Agnes Benassy-Quere, for example, openly mischaracterised the paper as Miran proposing to solve the IMS problem not through structural changes but with a new Plaza-style agreement and century bonds. She also pointedly questioned Miran’s opening assertion American industry should be put on fairer ground vis-à-vis the rest of the world.

FT Alphaville’s Robin Wigglesworth said it amounted to “essentially a glorified protection racket scheme with some lipstick.”

Mark Sobel at OMFIF said “Mar-a-Lago Accord proponents may have woefully exaggerated perceptions about US leverage over China.”

Steven Kamin, previously head of international finance at the Federal Reserve, joined the chorus too: “a Mar-a-Lago Accord would be pointless, ineffectual, destabilising, and only lead to the erosion of the dollar’s pre-eminent role in the global financial system.”

The commenters on Gillian Tett’s March column, were even more derisory:

“It’s something of a mystery why Miran and his ilk are so enamored of the Plaza Agreement.”

And “Stephen Miran is the ‘economics version’ of Jordan Peterson, an idi*t savant for MAGA idi*ts.”

But with German Chancellor Friedrich Merz declaring last week that China’s flooding of markets by “subsidising overcapacities” with a “currency that isn’t convertible freely … is not acceptable”, it’s hard not to wonder who’s laughing now?

This is all the more the case now that Merz has explicitly floated the idea of initiating a new type of Plaza framework (which let’s remember, for irony’s sake, Trump owned, between 1988-1995) to deal with the impact of Chinese imbalances on European trade.

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If you missed the inaugural edition of Monetary Forces — Noelle Acheson and my first outing in our new podcast series — you can catch it below. We run through a handful of stories that caught our eye today before diving into the BIS’s latest report on stablecoins.

Crypto is Macro Now

The Monetary Forces podcast with Noelle & Izabella

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a month ago · 2 likes · Noelle Acheson and Izabella Kaminska

In other news, Tether has apparently recruited not one but two lobbyists in Brussels in anticipation (I presume) of the European Commission officially consulting industry participants on whether its MiCA framework remains fit for purpose.

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One of the more surprising findings buried in the Bank for International Settlements’ advance release of its stablecoin chapter from the upcoming 2026 Annual Economic Report concerns a question that central bankers rarely have to ask: what happens when the marginal dollar starts being priced somewhere other than the traditional banking system?

The issue emerges in the report’s discussion of monetary policy transmission.

Under the conventional monetary system, central banks influence economic activity largely by changing the price of money. Policy rate adjustments ripple through money markets, bank funding costs, deposit rates, lending rates and ultimately spending and investment decisions.

Stablecoins may not fit neatly into that framework.

The BIS notes that most stablecoins do not directly pay interest. At first glance, that might suggest they should be even more sensitive to changes in policy rates than bank deposits. When interest rates rise, holding a non-yielding stablecoin should become less attractive relative to other assets.

Yet the emergence of decentralised finance has complicated that picture.

Stablecoin holders increasingly have access to yields generated through lending pools and other crypto-native financial arrangements. Those yields can be substantial. More importantly, according to the BIS, they appear to be driven by forces almost entirely separate from the traditional financial system.

“The evolution of yields earned in lending pools, however, has remained largely disconnected from traditional US interest rates,” the report notes.

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The Bank for International Settlements has used a special chapter in its forthcoming Annual Economic Report to make what may be its clearest call yet for internationally coordinated regulation of stablecoins, arguing that the rapid growth of privately issued digital dollars risks creating cross-border spillovers that no single jurisdiction can manage alone.

The chapter, titled Anchoring trust in money: innovation beyond stablecoins, is an advance release from the BIS Annual Economic Report and comes as policymakers around the world race to establish regulatory frameworks for stablecoins and tokenised finance.

While the BIS reiterates many of its longstanding concerns about stablecoins, the report places unusual emphasis on the need for coordinated international action. The institution argues that stablecoins are inherently cross-border instruments and that fragmented regulatory approaches could encourage arbitrage, market fragmentation and spillovers across jurisdictions.

“The unifying principle is that technology should serve — not undermine — the core public good functions of money,” yet, as the BIS continues, there is a risk of “stablecoin dollarisation” in emerging market and developing economies “where demand for foreign stablecoins could reshape capital flows, affect exchange rate dynamics and challenge monetary sovereignty.”

This, in turn, “calls for robust, internationally coordinated approaches that strengthen safeguards for users and mitigate adverse spillovers arising from stablecoins across markets and jurisdictions.”

That emphasis on international coordination is notable because there has so far been relatively little formal coordination between countries on the issue. One of the few explicit international commitments came in 2021, when G7 finance ministers and central bank governors pledged that both stablecoin and central bank digital currency initiatives should respect each other’s monetary sovereignty.

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