November 15, 2021

Project Dunbar

The International Bank of Settlements just completed Project Dunbar, which focused on smoothing out international trade. International settlements (ie, payments) activity primarily happens in US dollars.

Why Not Keep Using US Dollars?

When a factory in Malaysia tells toys to an importer in Mexico, that purchase usually occurs in US dollars. The Malaysian factory has no need at all for Mexican pesos. A Mexican toy company has no use at all for Malaysian ringgits. In this scenario, the US dollar is viewed by both parties as the least bad option for payment because it is liquid and stable.

The consequence of a US dollar transaction, however, means that the US government has legal jurisdiction, even though the trade occurred between two unrelated countries.

Say, for example, that environmentalists in the United States decided that palm oil plastics posed a threat to the environment and should be banned. If the environmentalists in America wanted to effectively ban palm oil plastics worldwide, they could lobby Congress to outlaw purchases of palm oil plastics in US dollars.

Even if you were a Mexican toy company or a Malaysian toy manufacturer, the use of dollars in the sale could subject one or both parties to US law.

If you have heard of the dollar’s reserve status referred to as an “exorbitant privilege”, this is the reason. Dollars are overwhelmingly used in international trade and come with a lot of legal baggage.

A neutral-party protocol like bitcoin removes the US government from their trade activities, increasing a nation’s sovereignty. Efforts like Project Dunbar demonstrate that governments and international organizations recognize the inevitability of changing the current payment systems. The fight is over which crypto, blockchain or Central Bank Digital Currency (CDBC) will fill the void.

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