I’ve been thinking about Andrew’s Eurodollar case study, and especially his distinction between financial instruments that compete with the dollar vs financial instruments that extend and complement the dollar. It seems common for financial instruments to be designed with the intention of circumventing US financial control, but after hill-climbing and responding to immediate pressures, wind up as an effective extension of the dollar and an enforcer of US financial control. Eurodollars are one example, and more recently, Paypal underwent a much faster and more extreme version of this.
I’m playing with the idea that this also describes the cryptocurrency ecosystem as a whole. Critics have long noted that despite early visions of transcending state-backed currencies, all but a tiny sliver of diehard ideologues think about their cryptocurrency balances in terms of traditional currencies, and not in terms of their actual coin balances; and that when commerce is conducted in cryptocurrency the prices are generally quoted in traditional currencies and converted at the time of transaction. (It’d be neat to do a survey of non-American cryptocurrency holders to ask whether they think of their balances in terms of their local currency, USD, or number of coins. I would expect to find a mix of the first two, and almost none of the third.) The profusion of USD-pegged stablecoins and the near-complete lack of interest in stablecoins pegged to other major world currencies together suggest that the cryptocurrency ecosystem as a whole is an adjunct to the dollarized financial ecosystem, rather than an independent—or even internationalized—financial ecosystem.
More speculatively but perhaps most significantly, my impression is that the main effect cryptocurrency has so far had on international financial flows is to make it easier for individuals from different financial ecosystems to transfer assets into the dollarized financial ecosystem. That is, my impression is that there are relatively many cases of people using cryptocurrency to transfer e.g. Chinese assets into accounts that can more freely interact with the dollarized financial ecosystem, and substantially fewer cases of people using cryptocurrency to transfer assets from the dollarized financial ecosystem into e.g. China. (Please correct me if this impression is wrong, it’s a subject I have not yet investigated deeply.)