Eventual Acceptance of Trust Deficit, Tether as USD Coin : Is it Nationalization or Internationalization or Privatization of US Corporate's worth / Markets - Least Written and Analyzed
The question and many more going forward should be an eye opener for many and most and even for bankers, investment bankers and central bankers, professors of theory and practice in economics should be contemplating of the uncertainty and direction alongwith how much less is shared and taught or discussed!
Fixation and Regulated World of Symbiotic Relationship of Markets
Forex Fx, Money MM, Equities Eq, Coins DEX, Commodities CMD (Non Ferrous, Rare Earth REM, Bullion CMD, Agriculture, Ferrous, and Energy - Crude, Gas)
Leaving zero liability of FED, later like in 1973 gold pegging was removed, USD to USDT pegging will also be taken off !
Hidden Agenda, Reason of Having USD as a reserve Currency and its consequent Impact ?
Hidden Agenda, Reason of having SWIFT and Settlements in US and By US ?
Hidden Agenda, Reason of having SEC as the role model ?
Hidden Agenda, Reason of having GDR's and FII/LP's/Portfolio Investments ?
Hidden Agenda, Reason, Role and Sanctity of UN, USAID, IFC, World Bank and what they have been doing ?
Hidden Agenda, Reason, Role and Sanctity of controlling all Markets - Owning, Controlling by US, Russia and Europe leading to Price Fixation of Commodities, Interest Rates - World Follows !
is QE QT a solution ?
Basis and evolution of Empires and Dynasties of last 500 years and its impact on questions above.
BIS, Internal Debt, Euro Dollar Market, Dollar Parity with EURO, LIBOR to SOFR, Trading Basket, Weightage, Interest and Ferguson Law
https://www.hoover.org/sites/default/files/research/docs/HAHWGWorkingPaper-202502-Ferguson%27s%20Law-Final.pdf
https://www.congress.gov/crs_external_products/IF/PDF/IF11707/IF11707.4.pdf
https://www.congress.gov/crs-product/IF11707
It has been written analysed and discussed that the USD has become worse than a Coin and that its worth is questionable in last 10 years and more so in last 5 years after COVID with QE policies and as almost 1T USD is interest outgo, 3.36 is average Int Rate on Treasuries/Bonds, this makes average maturity of around 10 years of bonds, which is more than Defence spending of around 800BUSD. With Internal debt of almost 37T USD and almost 55-59% of Printed / Lending in USD to outside US due to its acceptance as Reserve Currency. in Value Terms it is around 20-25BUSD in outside of US.
A mindset change is required as per the new administration on issues of Serving of International Obligations, Increase of Internal Debt, tools to strengthen internal assets and capital formation and reduced outsourcing.
It took almost 30 years and 2 world wars with maximum looting and 2 Nuclear bombings by US to reach a 70% reserve denomination by the world. Then it took almost 25 years to reduce it by 10-11% to 55-60%.
Even this reduction is making US and USD jittery and not able to manage. Europe, EURO, Pound and LIBOR lost ground. CIS broken away smaller countries are not contributing and Russia is not weaker but has doubled in last 10years from 1T to 2 T economy with continuous TAG of Defence and Space Super Power.
Hence, Reason for Tariffs, asking for almost 1T dollars of investments, looking inward and reduced outsourcing are few actions being taken.
TETHER COIN USDT
1. USDT's operations and impact on
international trade
·
Operations: USDT is a centralized stablecoin issued
by the private company Tether Limited, pegged to the U.S. dollar, and backed by
a reserve of assets (cash, Treasury bills, etc.). It operates on various
blockchains, enabling fast, low-cost cross-border transactions. This bypasses
the traditional banking system's often slow and expensive processes.
·
Impact
on corporates: Corporations,
especially those in high-inflation regions or emerging markets, can use USDT
for liquidity management, cross-border payments, and as a stable store of value
against volatile local currencies. This streamlines international transactions,
reduces currency risk, and lowers transaction fees.
·
Role
in international trade: USDT
serves as a "bridge currency" between cryptocurrencies and
traditional finance, facilitating international trade and remittances. It is
particularly valuable in regions with limited access to traditional banking
services.
2. Rationale for banks/corporates issuing
coins (Private Stablecoins)
·
Circumventing
traditional finance: Private
stablecoins emerged to address inefficiencies and fill gaps left by traditional
financial institutions. They offer faster, cheaper, and more accessible
alternatives, especially for cross-border payments.
·
Blockchain
advantages: They leverage
blockchain technology for transparency, security, and immutability.
Transactions are recorded on a public ledger, reducing fraud and increasing
trust among participants.
·
Monetary
policy complication: The rise of
stablecoins complicates central bank monetary policy. If too much money moves
into stablecoins, it could make it harder for central banks to control
inflation and interest rates, as stablecoins operate outside traditional
banking systems.
3. Privatization vs. Nationalization
·
Private
issuance (Privatization): USDT's
issuance by a private company is a form of privatized money. It operates
outside direct government control, though it is subject to increasing
regulatory scrutiny. The growth of private stablecoins represents a trend
toward private entities managing and issuing money.
·
Central
Bank Digital Currencies (CBDCs) (Nationalization): In contrast, a CBDC is a digital form of
a country's national currency, issued and controlled by the central bank. It
represents the nationalization of digital currency, offering control over
monetary policy, but raising concerns about surveillance.
·
The
debate: The growth of
private stablecoins like USDT and the development of CBDCs reflect a tension
between private sector innovation and central bank control over monetary policy.
4. Impact on US Fed's liability, trust, and
trade
·
US
Fed's liability: The rise of
private stablecoins does not directly reduce the US Fed's liability, as they
are not issued or backed by the Fed. However, they can impact the financial
system by potentially reducing demand for traditional bank deposits if users
shift funds into stablecoins.
·
Impact
on trust: USDT's
transparency issues, regulatory scrutiny, and past controversies have eroded
trust in the stablecoin, though it remains widely used. A stablecoin's
stability relies on trust in its issuer and reserves. The recent rise of
regulated stablecoins could increase institutional trust.
·
International
trade and settlement: USDT
significantly impacts international trade by offering a more efficient settlement
system than traditional banking. It reduces transaction costs and speed,
particularly in high-inflation regions. However, regulatory uncertainty and
issuer risk remain challenges for businesses.
Summary of USDT's role and its implications
USDT, as the leading private stablecoin, has
emerged as a significant force in global finance by offering a faster, cheaper,
and more accessible alternative for international payments and a stable store
of value in volatile markets. While its private issuance and growing adoption
represent a form of monetary privatization, its success is a direct challenge
to the traditional banking system and central bank control. This has prompted
central banks to explore their own digital currencies (CBDCs) as a nationalized
alternative to maintain monetary policy control.
The implications for the US Fed are complex.
The rise of private stablecoins does not reduce the Fed's direct liability but
could affect the banking system's stability and complicate monetary policy. The
long-term impact on international trade hinges on regulatory developments and
the ongoing competition between private and public digital currencies. While
USDT has democratized finance for many, its success also comes with ongoing
concerns about trust, transparency, and regulation, which all have an impact on
its long-term viability and role in global settlements.
Strategic Reasons and Background
A number of conspiracy theories and analyses
suggest hidden motives or strategic moves behind the creation and operation of
Tether (USDT), going beyond the stated goal of providing a stable digital
currency .These analyses often focus on the company's opaque reserve
management, its influence on crypto markets, and its potential role in
circumventing financial regulations . While Tether maintains it operates
transparently and legitimately, these alternative perspectives have been
documented in various publications and are worth considering.
Here are some of the key conspiracy theories
and alleged strategic moves behind Tether:
1. Market manipulation and artificial price
support
·
The
Theory: Tether, through
unbacked USDT issuance, has allegedly been used to inflate the price of Bitcoin
and other cryptocurrencies . The argument is that Tether created new USDT
without sufficient reserves and then used this "printed" money to buy
Bitcoin, driving up demand and price.
·
Published
Basis: A 2018 study
from the University of Texas suggested that Tether was used to prop up Bitcoin
during the 2017 bull run. While the study is not definitive proof, it
highlights the concern that Tether's issuance correlated with rises in
Bitcoin's price. The lack of transparency around Tether's reserves has fed this
theory.
2. Circumventing traditional financial systems
and sanctions
·
The
Theory: Tether operates
as a shadow bank, allowing for transactions that bypass traditional financial institutions
and regulations. This could potentially allow individuals or entities to evade
taxes, move money across borders without official oversight, and circumvent
international sanctions.
·
Published
Basis: The US government
has recognized that cryptocurrencies can be used to evade sanctions, with Iran
reportedly using Bitcoin to bypass restrictions [5, 6]. While this doesn't
prove Tether's direct involvement, its design facilitates such activity, making
it a target for regulatory scrutiny. The US Treasury has warned of the risks
posed by stablecoins in this regard.
3. A private, unregulated global banking
system
·
The
Theory: Tether and its
affiliates are building a private, unregulated financial system outside the control
of central banks and governments. By offering a dollar-pegged coin, they are
essentially creating a global, private currency.
·
Published
Basis: Financial
journalists and analysts have documented Tether's opaque operations and its
relationship with other crypto entities like Bitfinex . This has led to
speculation that the true goal is not just a stablecoin but a complete
financial ecosystem that operates with minimal government interference. This is
why governments are increasing regulatory efforts to bring stablecoins under
control.
4. Backing by opaque and risky assets
·
The
Theory: Tether's
reserves are not fully backed by cash and are instead composed of risky assets
like commercial paper, bonds, and other less liquid instruments. This makes the
reserve vulnerable to market fluctuations and could lead to a catastrophic
collapse if a "bank run" were to occur.
·
Published
Basis: In 2021, Tether
finally published a reserve breakdown showing that only a fraction of its
backing was in cash, with the majority being commercial paper and other assets.
While Tether has since reduced its commercial paper holdings, the initial lack
of transparency and reliance on these assets raised significant concerns about
the stability of the entire ecosystem.
5. Regulatory arbitrage and avoiding oversight
·
The
Theory: Tether's
operations have been deliberately set up in jurisdictions with lenient regulations
to avoid strict oversight. By operating in this manner, Tether can function
with less scrutiny than traditional banks or US-based stablecoin providers.
·
Published
Basis: Tether has faced
legal and regulatory challenges, including a settlement with the New York
Attorney General over claims of misrepresenting its reserves [4]. This history of
regulatory issues fuels suspicion that the company’s business model is designed
to sidestep financial oversight.
It is important to note
that these are theories and criticisms, and Tether consistently denies any
wrongdoing, insisting that its operations are legitimate and its reserves are
sound. However, the lack of complete transparency and its history of legal issues
have provided fertile ground for these alternative narratives
Relevant Case Studies and Repeating situations QE and reduced USD /Decoupling :
Panic of 1873, the Great Depression, and
the 2008 Global Financial Crisis, identifying common elements such as
credit expansion, speculative bubbles, and regulatory failures to draw
parallels with current economic conditions
Comparative analysis of economic crises in
Germany, Venezuela, Zimbabwe, and Japan
|
Factor
|
Germany
(Weimar Republic, 1921–1924)
|
Venezuela
(2016–present)
|
Zimbabwe
(Late 1990s–2008)
|
Japan
(Post-WWII and since 1990s)
|
|
Primary Causes
|
War Reparations: Astronomical debt payments imposed
after WWI.
War-Related Production Collapse: Significant industrial capacity
was lost or damaged.
Political Instability: The new Weimar Republic was fragile and
faced numerous political shocks.
Passive Resistance: The government printed money to support
striking workers during the French occupation of the Ruhr.
Loss of Public Trust: Widespread loss of faith in the government
and economy fueled the crisis.
|
Oil Price Collapse: Over-reliance on oil exports left the
economy vulnerable when prices crashed.
Fiscal Mismanagement: Unsustainable government spending and
expansionary monetary policy.
Corruption: Widespread corruption within the state oil company
and government.
Price and Currency Controls: Government controls led to severe
shortages and a black market.
Political Turmoil: Autocratic rule and political instability.
|
Land Reform: Seizure of commercial farms collapsed
agricultural output, the economy's backbone.
War Spending: Financing military intervention in the Congo by
printing money.
Political Instability: Loss of investor confidence and capital
flight.
Poor Governance: Widespread corruption and economic
mismanagement.
Drought: A contributing factor that exacerbated food shortages.
|
Post-War
Devastation: Significant
industrial damage and large deficits.
1970s Oil Shocks: External price shocks impacted inflation.
Asset Bubble Burst (1990s): Collapse of asset prices and
excessive debt.
Measured Monetary Policy: The central bank has exercised more
control to avoid hyperinflation.
Demographics: Aging population and shrinking workforce contribute
to economic stagnation.
|
|
Key Events &
Triggers
|
- WWI
Reparations: Set at 132 billion gold marks in 1921.
- Ruhr Occupation (1923): French and Belgian troops occupied
the industrial region.
- Passive Resistance: Government financed strikes by
printing money.
- Dawes Plan (1924): Restructured reparations and introduced
a new currency.
|
- Oil Price
Crash (2014): Plummeted from ~$100 to ~$40 per barrel.
- Economic Mismanagement: Poor policies by Chávez and
Maduro.
- US Sanctions: Imposed from 2018 onwards.
- Corruption: Mismanagement of state-owned enterprises.
|
- Land
Reform (began ~2000): Forced seizure of farms.
- Congo War (1998–2003): Military spending financed by
printing money.
- Political Instability: Widespread corruption and poor
governance.
- Drought: Exacerbated food shortages.
|
- Post-War
Devastation (1945): Industrial damage.
- Oil Shocks (1970s): External price shocks.
- Asset Bubble Burst (1990s): Collapse of asset prices.
- Aging Demographics: Declining workforce and aging
population.
|
|
Currency Dynamics
& Values
|
Extreme
Hyperinflation: Reached a peak
monthly rate of over 726 billion% in 1923.
Exchange Rate: The mark became worthless, reaching 4.21
trillion marks to one US dollar by Nov 1923.
Resolution: Currency reform with the introduction of the
Rentenmark and Reichsmark.
|
Protracted
Hyperinflation: Peaked at
over 63,000% annually in 2018.
Severe Devaluation: The BolÃvar became effectively worthless,
with an exchange rate reaching 248,832 bolÃvares to one US dollar (official)
in Aug 2018.
De Facto Dollarization: The US dollar is widely used for
transactions.
|
Catastrophic
Hyperinflation: Peaked at a
monthly rate of 79.6 billion% in Nov 2008.
Currency Abandonment: The Zimbabwean dollar was abandoned in 2009
in favor of a multi-currency system.
New Currency Struggles: The re-introduced ZWL has faced rapid
depreciation.
|
Controlled Inflation
(Post-WWII): Experienced a
high of 24.9% in Feb 1974 but avoided a spiral.
Persistent Deflation (Since 1990s): Faced long periods of low
inflation or deflation.
Stable Exchange Rate: The yen has remained a stable global
currency, unlike the other cases.
|
|
Money Market &
Bond Market
|
Collapse of Markets: Hyperinflation wiped out both money
and bond markets. Bonds issued pre-WWI became worthless, and the currency's
instability made money market instruments impossible.
Impact: Eliminated any mechanism for the government to raise non-inflationary
funds, forcing reliance on the printing press.
|
Degradation of
Markets: Government
bond issuance was primarily bought by the central bank, fueling
hyperinflation. Money markets effectively ceased to function in the local
currency due to its volatility.
Impact: Eliminated internal borrowing and access to international
capital markets, trapping the government in a cycle of printing money.
|
Destruction of
Markets: The local
currency bond and money markets were completely destroyed by hyperinflation.
The government's fiscal irresponsibility and printing led to a total loss of
investor confidence.
Impact: Forced reliance on seigniorage (money printing) for
government finance, which accelerated the collapse of the currency and
economy.
|
Japan Government
Bond (JGB) Market Creation & Impact:
- Post-WWII: Government issued bonds to finance
reconstruction.
- Purpose: To manage budget deficits and provide a benchmark
for Japanese interest rates.
- Role in Deflation: JGBs became central to the Bank of
Japan's quantitative easing policy. The BOJ aggressively bought JGBs to
inject money into the economy and fight deflation. This created an ultra-low
interest rate environment.
- Market Stability: Supported by high domestic savings and
institutional ownership, the JGB market remains deep and stable despite
massive government debt.
- Social Impact: Zero/negative interest rates have provided
cheap government financing but penalized savers and retirees.
|
|
Economic Sectors
|
Financial Sector: Total collapse, wiping out savings and
credit markets.
Manufacturing: Crippled by the inability to plan, access credit,
or import materials.
Agriculture: Food production declined as farmers refused
worthless currency.
Services: Commercial activity ground to a halt due to the
worthless currency.
|
Oil Sector: Output plummeted due to corruption and
lack of investment.
Manufacturing: Severely impacted by price controls, shortages,
and lack of inputs.
Retail: Shifted to the black market; formal retail struggled.
Healthcare: Suffered from severe shortages of supplies.
|
Agriculture: A 45% drop in output following
land reforms.
Manufacturing: Output fell 29% in 2005 due to
economic instability.
Banking Sector: Collapsed due to hyperinflation.
Mining: Output declined significantly.
|
Manufacturing: Rapid post-war growth (automobiles,
electronics); later focused on technology and efficiency.
Financial Sector: Stagnated in the 1990s due to bad loans.
Technology & Exports: Key drivers of economic growth.
Retail & Services: Affected by deflationary pressures and
lower demand.
|
|
Social Impact
|
Destruction of
Savings: The middle
class and those on fixed incomes were financially ruined.
Hunger and Poverty: Widespread food shortages and severe poverty.
Political Extremism: Erosion of faith in democracy, fueling
extremist movements.
Social Unrest: Widespread hardship and riots.
|
Widespread
Impoverishment: The vast
majority of the population plunged into poverty.
Mass Migration: Millions fled the country, creating a major
humanitarian crisis.
Social Unrest and Crime: Fuelled by economic collapse and
desperation.
Healthcare Crisis: Severe shortages and decline in public health.
|
Extreme Poverty and
Emigration: Massive
impoverishment and large-scale emigration, leading to a "brain
drain."
Increased Inequality: Wealth concentrated among those with access
to foreign currency.
Collapse of Public Services: Education and healthcare systems
failed.
|
Economic Miracle: High employment, improved living
standards, and social stability post-WWII.
Lost Decades Impact: Increased job insecurity, stagnant wages,
and generational inequality.
Demographic Challenges: Strain on social welfare programs from an
aging population.
|
|
Resolution
|
Currency Reform: New currency backed by tangible
assets, restoring stability.
International Aid: The Dawes Plan restructured reparation
payments.
Political Stabilization: The government restored some level of
order.
|
De Facto
Dollarization: Informal
adoption of the US dollar provides some stability.
Policy Shifts: Easing of economic controls.
Underlying Issues: Systemic corruption and mismanagement remain
significant challenges.
|
Currency
Abandonment: Adoption of a
multi-currency system in 2009.
Limited Recovery: Persistent economic and social challenges
continue to plague the country.
|
Austerity and
Monetary Policy: Stabilization
measures implemented post-WWII.
Unconventional Monetary Policy: Quantitative easing and low
interest rates to combat deflation.
Structural Reforms: Ongoing efforts to address long-term
stagnation.
|
Relevant Concepts and their relevance
|
Head
|
Definition
|
Key strategic points
|
Objective
|
Symbiotic relationship
|
Value in USD terms
|
|
BIS
|
Bank for
International Settlements: An
international financial institution that acts as a bank for central banks. It
fosters international monetary cooperation and provides a forum for central
banks.
Bureau of Indian Standards: The national standards body of India
for product quality and safety.
|
Financial Stability: Promotes international monetary and
financial stability through cooperation.
Regulatory Standards: Sets standards, such as those related to
capital adequacy (e.g., Basel accords).
Research: Publishes economic and financial research.
|
Monetary
Cooperation: Fosters
cooperation among central banks.
Banking Supervision: Promotes and supports best practices in
banking supervision.
|
Central Banks: Serves as a hub for central banks to
discuss and coordinate financial and monetary policies.
Global Financial System: Its work on standards (like Basel III)
influences the stability and regulation of the entire global banking system.
|
Unquantifiable: The BIS's value is derived from its
function as a central banker's bank, not as a currency or investable asset.
|
|
US Internal Debt
|
The portion of a
country's national debt held by its own residents, investors, and government
entities. This includes both "intragovernmental debt" and debt held
by the public domestically.
|
Intragovernmental
Debt: Includes debt
held by government trust funds like Social Security.
Domestic Public Debt: Includes Treasury securities held by
domestic private investors and the Federal Reserve.
Fiscal Management: Enables the government to finance its
operations and budget deficits.
|
Fiscal Management: Enables the government to finance its
operations, programs, and budget deficits.
Economic Stimulus: Allows the government to increase spending
during economic downturns.
|
Government Spending
and Taxation: A deficit
(spending > revenue) leads to borrowing, increasing the debt.
Financial Markets: Creates a large, stable market for government
bonds, influencing domestic interest rates.
|
Approx. $37.64
Trillion as of fiscal
year 2025 for the entire US national debt, though the exact split between
internal and external debt is not constant.
|
|
Eurodollar Market
|
US dollars deposited
in commercial banks outside the United States, operating beyond the direct
control of the Federal Reserve.
|
Regulatory Freedom: Operates outside US regulations,
allowing for flexibility and cost efficiency.
Liquidity Management: Provides a source of short-term, dollar-denominated
funding for financial institutions globally.
Global Reach: A major international capital market.
|
Cross-border
Finance: Facilitates
international trade and finance by providing a global pool of dollar
liquidity.
Interest Rate Management: Offers market-driven rates for both
lenders and borrowers, often better than domestic rates.
|
Global Banking
System: Banks globally
use this market to manage their dollar liquidity.
International Trade: Provides crucial dollar financing for
businesses engaged in international commerce.
|
Approx. $13.8
Trillion as of 2016,
though use has declined since then.
|
|
Dollar Parity with
EURO
|
The specific
exchange rate condition where one euro is equal in value to one US dollar
(EUR/USD = 1.00).
|
Economic Perception: Carries significant psychological
weight, representing the relative economic strength of the US and Eurozone.
Monetary Policy Divergence: Driven by differing interest rates
and economic outlooks between the Federal Reserve and the European Central
Bank.
Market Forces: The exchange rate is determined by the supply and
demand for the respective currencies.
|
Relative Value
Indicator: Acts as a
benchmark for comparing the economic health and monetary policy stances of
the US and Eurozone.
Trade and Investment Analysis: Helps investors gauge the
attractiveness of assets denominated in each currency.
|
Trade and
Competitiveness: A stronger
dollar makes US exports more expensive.
Central Banks: Monetary policy decisions directly impact the
exchange rate.
|
$1 = €0.86 as of October 2025.
|
|
LIBOR to SOFR
|
The market-wide
transition away from the discredited London Interbank Offered Rate (LIBOR) to
the more robust Secured Overnight Financing Rate (SOFR) for USD-denominated
instruments.
|
Risk-Free Rate: SOFR is based on actual, secured
transactions in the repo market, eliminating credit risk.
Transparency and Reliability: SOFR is less susceptible to
manipulation due to its transaction-based nature.
Benchmark Integrity: The transition restores confidence in
benchmark rates.
|
Benchmark Integrity: To replace a flawed benchmark with a
credible and transparent one.
Financial Stability: To reduce systemic risk by ensuring
benchmark rates reflect actual market activity.
|
Market Transition: Requires massive coordination across
financial institutions, borrowers, and derivatives markets.
Financial Products: Necessitates replacing or adjusting existing
contracts.
|
Not a currency: Both are benchmark interest rates, not
currencies with a USD value.
|
|
Trading Basket
|
A portfolio management
strategy that involves buying or selling multiple securities simultaneously
in a single order.
|
Diversification: Distributes risk across multiple
assets.
Thematic Investing: Allows investment in specific sectors or
investment styles.
Efficiency: Reduces execution time and transaction costs.
|
Efficient Portfolio
Management: Streamline the
execution of multiple orders.
Strategic Execution: Implement complex investment strategies with
a single command.
|
Portfolio
Components: The basket's
performance is the weighted sum of its components' performance.
Market Movements: The basket's value responds to the collective
movement of its constituent securities.
|
Dependent on assets: The value is dependent on the specific
securities and currencies included in the basket and their current market
prices.
|
|
Weightage
|
The relative
proportion or percentage of a particular security or asset within a portfolio
or market index.
|
Index Impact: A higher weightage gives a security a
greater influence on the index's performance.
Asset Allocation: A tool for managing diversification and risk.
Performance Analysis: Measures how different components
contribute to returns.
|
Diversification
Management: Ensure a
balanced and diversified portfolio.
Risk Control: Control exposure to specific assets or sectors.
|
Asset Performance: An asset's weightage determines its
influence on the total portfolio's return.
Rebalancing: The weightage can shift due to performance,
requiring adjustments.
|
Dependent on value: Weightage is a percentage and does not
have a USD value itself, but is calculated based on the USD value of the
asset in the portfolio.
|
|
Interest Rate
|
The cost of
borrowing money or the return earned on invested capital, expressed as a
percentage of the principal.
|
Central Bank Policy: Sets key rates, influencing borrowing
costs.
Risk and Creditworthiness: The rate charged depends on the
borrower's perceived risk.
Inflation: A key tool for managing inflation.
|
Credit Provision: Facilitates lending and borrowing.
Economic Control: Controls the money supply and manages
inflation.
|
Lenders and
Borrowers: A mutually
beneficial relationship where lenders earn a return and borrowers gain access
to capital.
Inflation: High inflation can erode the real return on interest,
while a central bank raising rates to combat inflation can increase borrowing
costs.
|
Variable: Interest rates vary based on central
bank decisions and market conditions, not a fixed USD value. For example, the
average interest rate on US national debt for 2025 was 3.36%.
|
|
Ferguson Law
|
A principle stating
that a great power will decline if its interest payments on debt consistently
exceed its defense spending.
|
Fiscal
Sustainability: Highlights the
risk of uncontrolled government debt.
Spending Priorities: Places a stark choice between national
defense and debt servicing.
Market Confidence: Assumes that rising debt servicing costs could
signal fiscal irresponsibility to markets.
|
Fiscal Prudence: Serves as a cautionary principle for
governments to manage their debt responsibly.
Economic Warning: Offers a framework for assessing long-term
risks to a nation's economic and military power.
|
Government Debt and
Defense: Creates
tension in a government's budget between debt payments and defense spending.
Creditors and Government: The government's need to service debt
payments is dependent on its ability to tax and borrow, linking it to the
interests of its creditors.
|
USD costs: In 2024, US debt servicing costs
exceeded defense spending, which tests the "law" in a modern
context.
|
|
Basket of Main Currencies
|
A portfolio of major
global currencies, used for benchmarking or reducing exchange-rate
volatility. A key example is the US Dollar Index (USDX).
|
Risk Mitigation: For investors, it reduces the risk
from relying on a single currency's performance.
Exchange Rate Management: Central banks use it to manage their
own currency's value relative to a major set of trading partners.
Performance Measurement: Provides a benchmark for evaluating
relative currency strength.
|
Currency Stability: To reduce the volatility of a
currency.
Portfolio Diversification: To spread risk and gain broad exposure
to foreign exchange movements.
|
Global Trade and
Capital Flows: The basket
reflects the trade and economic relationships between major global economies.
Monetary Policy Coordination: The value and weight of currencies
in a basket are influenced by the monetary policies of the respective central
banks.
|
USDX Weights: The USDX contains major currencies
weighted by trade with the US:
- Euro (EUR): 57.6%
- Japanese Yen (JPY): 13.6%
- British Pound (GBP): 11.9%
- Canadian Dollar (CAD): 9.1%
- Swedish Krona (SEK): 4.2%
- Swiss Franc (CHF): 3.6%
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Summary analysis
·
Common
thread: The
hyperinflation cases of Germany, Venezuela, and Zimbabwe share a core dynamic:
a severe economic shock (war, oil price crash, or land reform) leads to a
decline in productive output. Governments then respond by printing money to
cover expenses, which further fuels inflation and destroys confidence in the
currency.
·
Contrasting
case (Japan): Japan did not
experience hyperinflation. While it faced periods of high inflation following
WWII and the 1970s oil shock, its central bank and fiscal policy responses were
more effective, preventing a hyperinflationary spiral. More recently, Japan has
contended with the opposite problem: persistent deflation.
·
Consequences: The consequences across the
hyperinflationary economies were remarkably similar: massive wealth
destruction, social chaos, increased poverty, and a loss of faith in political
institutions.
·
Resolution: Resolving hyperinflation typically
requires a combination of ending the root cause of excessive money printing,
implementing a credible currency reform, and rebuilding public trust.
The geopolitical context behind international
finance and institutions
USD as the world's reserve currency
The US dollar's status as the global reserve
currency is rooted in a combination of historical dominance, economic
fundamentals, and geopolitical influence.
·
Conventional
reason: Following the
economic devastation of World War II, the US was the only major power with a
fully intact and dominant economy. The 1944 Bretton Woods agreement established
a system where other currencies were pegged to the dollar, which was, in turn,
convertible to gold. Even after President Nixon ended convertibility in 1971,
the dollar's momentum, stability, and liquidity—backed by a large, transparent
US economy—kept it as the primary reserve currency.
·
Geopolitical
impact ("Hidden Agenda"): The demand for dollars from central banks and global trade
allows the US to finance large trade and budget deficits at lower costs than
other countries. This has been a key tool of American foreign policy. For
instance, the petrodollar system, established with Saudi Arabia in the 1970s,
ensured global oil was priced in dollars, cementing its demand. The US can also
exert significant pressure through sanctions by restricting access to the
dollar system, as it has against countries like Iran and Russia.
SWIFT and settlements in the US
The Society for Worldwide Interbank Financial
Telecommunication (SWIFT) is a global financial messaging system. Payment
clearinghouses, like CHIPS in New York, are where the actual settlement of
dollar transactions takes place.
·
Conventional
reason: SWIFT was
created in 1973 to replace the insecure Telex system, making international
financial communication faster and more secure. Since the US dollar is the
world's reserve currency, a vast number of transactions naturally flow through
the US banking system and its settlement infrastructure, such as CHIPS.
·
Geopolitical
impact ("Hidden Agenda"): While SWIFT is a cooperative owned by member institutions,
it is subject to US and European law. This gives the US significant leverage.
By working with the EU, the US can weaponize the SWIFT system to enforce
financial sanctions, as seen in the disconnection of Iranian and Russian banks.
This has prompted sanctioned countries and geopolitical rivals to seek
alternative, parallel payment systems.
SEC as a regulatory "role model"
The US Securities and Exchange Commission
(SEC) regulates US financial markets to ensure transparency and protect
investors. Its regulations often influence global standards.
·
Conventional
reason: The SEC was
established in 1934 to restore faith in US markets after the 1929 stock market
crash. Its purpose is to ensure fair dealing, prevent fraud, and mandate
transparent financial disclosures. The prestige of US capital markets and the
sheer size of the economy mean that foreign companies often adopt US standards
to access US investors.
·
Geopolitical
impact ("Hidden Agenda"): By influencing global regulatory norms, the SEC extends
the US legal and regulatory framework internationally. This has been criticized
as regulatory overreach and the "weaponization" of US market access
to force ideological preferences on international bodies. This can impose significant
compliance costs on foreign companies, with US regulators potentially affecting
global regulatory frameworks outside of the domestic US context.
GDRs, FIIs/LPs, and portfolio
investments
Global Depository Receipts
(GDRs), Foreign Institutional Investors (FIIs), Limited Partners
(LPs), and portfolio investments are all mechanisms for international capital
to flow into a country.
·
Conventional
reason: These mechanisms
provide developing countries with access to foreign capital for investment and
economic growth. FIIs/LPs seek returns by investing in emerging markets, while
GDRs allow foreign companies to access US and European stock markets more
easily. This capital inflow can bridge investment and technology gaps.
·
Geopolitical
impact ("Hidden Agenda"): Foreign capital flows can also be volatile, leading to
instability if they reverse suddenly. The influx of portfolio investment is not
without risk, as it can expose domestic economies to international market
shocks and potentially lead to asset price inflation.
UN, USAID, IFC, World Bank: Role, sanctity,
and actions
These multilateral organizations were formed
after WWII to promote international cooperation, stability, and
development.
·
Conventional
reason:
o UN: Fosters international peace and cooperation, focusing on
social, economic, and human rights issues.
o USAID: Administers foreign aid and development assistance to
support developing countries.
o IFC: A member of the World Bank Group that focuses on private
sector development and investment in developing countries.
o World Bank: Provides loans and grants to countries for capital
projects and promotes long-term development.
·
Geopolitical
impact ("Hidden Agenda"): These institutions, particularly the World Bank and IFC,
operate with a weighted voting system where countries' votes are proportional
to their capital subscriptions. This gives larger contributors, especially the
US, disproportionate influence over institutional policies and lending
decisions. Critics argue that the policies they promote often align with the
economic interests of dominant powers and can impose specific economic
ideologies on borrowing countries.
Controlling markets: Price fixation of
commodities and interest rates
The idea of US, Russia, and Europe fixing
commodity prices and interest rates is an oversimplification of a complex
geopolitical dynamic.
·
Conventional
explanation: Commodity and
interest rates are determined by global supply and demand dynamics, influenced
by geopolitical tensions, natural disasters, and central bank monetary policy.
For example, a war in Ukraine disrupted global grain and oil supplies,
impacting prices. Central banks like the US Federal Reserve influence global
interest rates through their monetary policy, particularly when the currency is
a reserve asset.
·
Geopolitical
reality ("Hidden Agenda"): While not "fixed," global powers exert
significant influence over market outcomes. Sanctions, trade wars, and military
conflicts can create market disruptions that disproportionately benefit some
actors. For instance, US sanctions on Russian and Iranian oil have impacted
global supply and energy prices.
Evolution of empires and impact on global
finance
The legacy of empires over the last 500 years
has profoundly shaped the modern global financial system.
·
Basis
and evolution: The rise and
fall of empires, such as the Spanish, British, and Russian, determined the
global power structure. These empires established vast trading networks, legal
frameworks, and financial institutions that formed the bedrock of modern finance.
The British Empire's financial system, for instance, relied on the pound
sterling as a global reserve currency, a role the US dollar later assumed.
·
Impact
on contemporary finance: The
institutions, rules, and power dynamics of today's global economy are a direct
evolution of this imperial history. The structures of the UN, World Bank, and
IMF were created in the post-imperial period, reflecting the new balance of
power. The reliance on a dominant reserve currency and a centralized payments
system, while offering stability, perpetuates a hierarchy of power that gives
disproportionate influence to the nations at the top, a dynamic directly linked
to the imperial past. The struggles over market control and geopolitical
influence are modern manifestations of these historical power struggles, but
now fought through economic and financial means rather than outright conquest.
·
Conspiracy theories
suggest that a hidden agenda exists behind the dominance of the US dollar,
Western-led financial institutions, and specific market mechanisms, aiming to
control global financial markets and exert political influence. These theories
often blend legitimate economic concepts with claims of deliberate manipulation
by a powerful elite. While these theories are widely debated, several published
sources discuss the geopolitical implications and potential misuse of these
systems, which form the basis for many of these conspiracy narratives.
Conspiracy theories regarding the US Dollar as
a reserve currency
The central conspiracy theory revolves around
the concept of "exorbitant privilege," where the US abuses its power
by exploiting the dollar's status.
· The
theory: It is claimed
that a cabal within the US government and powerful financial institutions
deliberately orchestrated the dollar's ascent after World War II to serve their
own interests. They allegedly manipulate the money supply and leverage high
debt to maintain a cycle of dependency, forcing other nations to acquire
dollars to facilitate international trade.
· Published
basis: Academic and
economic analyses confirm the US benefits greatly from this status, which
allows it to finance large deficits and projects at lower costs. The strategic
move to decouple the dollar from gold in 1971 is also cited as a key event
demonstrating US influence and power. Some sources acknowledge that while the
dollar's stability is beneficial for global trade, this "exorbitant
privilege" has a tangible geopolitical impact that can be exploited for
political gain.
Conspiracy theories regarding SWIFT and US
settlements
Conspiracy narratives concerning SWIFT and US
payment systems center on the alleged use of financial infrastructure as a
weapon for control.
· The
theory: Proponents claim
that the US deliberately positions itself as the primary hub for international
dollar settlements to monitor and control financial transactions globally. The
theory suggests the US weaponizes this control through SWIFT to enforce its
will on other nations through sanctions and by blocking access to the global
financial system.
· Published
basis: It is a
documented fact that the US, through its influence over SWIFT and payment
clearinghouses like CHIPS, has been able to enforce financial sanctions against
countries like Russia and Iran. Geopolitical analyses often discuss the
leverage this gives the US and the subsequent search for alternative payment
systems by targeted nations.
Conspiracy theories regarding the SEC as a
"role model"
Conspiracy theories frame the SEC's influence
as a form of regulatory imperialism, forcing other countries to conform to US
standards.
· The
theory: The SEC, under
the pretense of "market stability," is allegedly used by US interests
to impose US financial regulations on other countries, thereby extending US
legal and corporate control globally. This is portrayed as a deliberate effort
to create an uneven playing field that benefits American companies.
· Published
basis: While the SEC's
purpose is to ensure fair markets, there is evidence that the US often attempts
to project its regulatory standards internationally. The sheer size and
influence of US capital markets means that foreign companies often have to
comply with SEC standards if they wish to access US investors. Some published
works discuss the tension between US regulatory standards and the sovereignty
of other nations.
Conspiracy theories regarding GDRs, FIIs/LPs,
and portfolio investments
The conspiracy narrative focuses on how
foreign investment is used as a tool for economic dominance.
· The
theory: It is claimed
that these investment mechanisms are not just about capital flow, but are a
means for powerful foreign interests (primarily US and European) to penetrate
and control the economies of developing countries. By using sophisticated
financial tools, they allegedly strip assets, manipulate markets, and
destabilize local economies for profit.
· Published
basis: Regulatory
bodies like SEBI have taken action against entities for manipulation related to
GDRs. Some academic studies also note the role of foreign investment in
creating market instability and vulnerability in developing nations. Critics
argue that the volatility of these capital flows can lead to asset inflation
and potential market crashes, which can be detrimental to local
economies.
Conspiracy theories regarding the UN, USAID,
IFC, and World Bank
These theories portray multilateral
institutions as puppets of Western powers, especially the US, rather than
neutral arbiters.
· The
theory: It is alleged
that these institutions are fronts for imposing a "New World Order"
and Western economic and political ideologies on the rest of the world. Critics
point to the weighted voting systems, which give larger contributors like the
US disproportionate influence over policy decisions, as evidence of their lack
of neutrality.
· Published
basis: The weighted
voting system of the World Bank and IFC is well-documented. Academic and
political analyses discuss how these institutions, particularly the World Bank,
have historically promoted economic policies that align with Western interests,
sometimes leading to unfavorable outcomes for borrowing nations. The perceived
lack of neutrality and the imposition of specific economic conditionalities
have led to criticism, though the idea of a secret "New World
Government" is largely considered a fringe theory.
Conspiracy theories regarding market control
and price fixation
These narratives claim that major global
powers secretly collude to control global markets.
· The
theory: The claim is
that countries like the US, Russia, and Europe orchestrate global commodity
prices and interest rates to their advantage. This is allegedly done through a
combination of market manipulation, sanctions, and coordinated economic
policies to maximize their own geopolitical and economic interests.
· Published
basis: Published research
discusses how geopolitical tensions can affect market stability and commodity
prices. Monetary policies of powerful central banks like the US Federal Reserve
have a significant impact on global interest rates, given the USD's status as
the reserve currency. While outright price "fixation" is not openly
documented, the influence of these powers on market dynamics through sanctions
and monetary policy is acknowledged.
Published sources on financial conspiracy
theories
· Source: Frontiers in Psychology
o Study: "Conspiracy Mentality Predicts Public Opposition to
Foreign ..." (2021)
o Findings: The study notes that economic phenomena like globalization
are fertile ground for conspiracy theories, as they can cause insecurity and
confusion for many people. It points out that conspiracy beliefs can negatively
impact decision-making in various life areas, including financial ones.
· Source: Digital disinformation and financial
decision-making (Frontiers, 2025)
o Findings: This paper analyzed social media platforms and found a
"sophisticated economic conspiracy narrative ecosystem" that blends
global anxieties with local cultural elements. It describes "Currency
Manipulation" theories, where conspiracy theorists "appropriate
legitimate economic concepts" to create narratives of market control.
· Source: MDPI Journal
o Study: "The Strategic Exploitation of Conspiracy Theories by
Populist ..." (2025)
o Findings: This paper discusses how populist leaders exploit
conspiracy theories to shape national identities and consolidate power. It also
links the formation of international institutions like the United Nations to
Cold War-era conspiracy theories about a "shadowy, malevolent
international government".
· Source: Investopedia and Economic
Analyses.
