The Dollar's Departure: Stablecoins, Not a New Invention?

Written by: Lacie Zhang, Researcher at Bitget Wallet

Some say that the true global reserve currency has never been the dollar, but rather the Eurodollar. This term originated from the telex address of a bank, ultimately referring to all dollars held outside the United States.

Seventy years ago, the Soviet Union and Eastern European countries deposited dollars into the Nordic Commercial Bank in Paris and the Moscow National Bank in London to avoid having their dollar accounts frozen in the U.S. The telex address of the Nordic Commercial Bank was "Eurobank"—the name of the Eurodollar came from this. However, it was the UK that transformed these dollars into a large-scale credit market. After the Suez Crisis in 1956, the UK tightened foreign exchange controls, prompting London bankers to lend out these offshore dollar deposits, thus giving birth to Eurodollar credit operations. By 1957, the Bank of England further relaxed policies, making London the center of the Eurodollar market.

Surprisingly, the explosive growth of Eurodollars was primarily driven by the U.S. itself: domestic deposit rates were too low, and there was no incentive for offshore dollars to return; during the oil crisis of the 1970s, most of the dollar profits from oil-producing countries also did not return. They were deposited in London or other offshore banks. The Eurodollar market thus grew from a few million dollars to trillions. From that moment on, "Eurodollars" no longer belonged solely to Europe.

The story of Eurodollars unfolded along two main lines: one line saw the institutions carrying dollar credit constantly changing, from bank ledgers to fintech company databases, and then to the reserve sheets of stablecoin issuers; the other line saw the relationship between users and accounts quietly changing: from completely entrusting money to institutions to today, where individuals can control their own assets.

However, three things have remained unchanged throughout these two lines over seventy years: dollars can continuously expand outside the U.S.; their ultimate settlement is always tied to the U.S.; and the entity managing your account is not necessarily the same as the one truly committing to redemption. In other words, the question of "who owes you a dollar" has never disappeared, but its answer has always been changing. The story this article aims to tell is how this question has intertwined through two migrations, up to today.

I. The Dollar's Departure from the U.S.

The moment deposits were transferred to London, an easily overlooked thing happened: the entity that owed this money changed from a New York bank to a London bank. The currency unit remained the same, but the guarantor changed.

If it were only this, the story would end here, but London banks soon discovered something more interesting: they could not only accept dollar deposits but also create additional dollars out of thin air based on these deposits.

When a bank lends a dollar to a business, it increases its assets with a claim against the borrower, while simultaneously increasing its liabilities with a "dollar deposit"—this deposit can immediately be used to pay suppliers, purchase equipment, or repay other debts. Milton Friedman, a representative of monetarism, later remarked on this phenomenon: the source of Eurodollars is not the printing press, but "the pen of a bookkeeper."

Banks do not create wealth out of thin air; they are simply utilizing an ancient credit game rule: as long as the payment promise is accepted by the market, the dollars written in the ledger can be treated as real dollars. This pen proved for the first time that the bearer of dollars does not have to be a bank within the U.S.

What truly fed this market was a regulatory wall. The U.S. Q Regulation set a cap on the interest rates banks could pay depositors, while London banks had no such wall, allowing them to offer higher interest rates to attract business. Economic historian Catherine Schenk found in British archives that in June 1955, due to interest rates being higher than those offered by U.S. counterparts, the Midland Bank in London absorbed about $49 million in 30-day dollar deposits in just one month. After the 1957 pound crisis, the UK also prohibited its banks from using pounds for trade financing with third countries, prompting London banks to fully pivot to dollar business, with enterprises and governments seeking financing directly from London instead of New York.

The global appetite for dollars grew larger, while U.S. banks were constrained—this gap fed an entire dollar market that could self-circulate and expand outside the U.S. By around 1960, this market was about $1 billion; a decade later, it approached $50 billion; during the 1973 oil crisis, the massive dollars earned by oil-producing countries flowed back into the banking system through London; by 2007, offshore dollar deposits had surged to about $8.9 trillion, exceeding 150% of deposits in U.S. domestic banks. Today, the dollar credit stock of non-bank borrowers outside the U.S., as reported by the Bank for International Settlements, has surpassed $14.3 trillion.

The dollar has long ceased to be solely a matter for the U.S., but from the moment Eurodollars were born, they carried an inescapable paradox: London banks could create dollar deposits but could not create reserves for the Federal Reserve. They could write "I owe you a dollar" in their ledgers, but once it came time to convert that promise into cash, or if the market suddenly tightened, they still had to turn back to U.S. correspondent banks and the clearing system for help.

Dollar credit has stepped out of the U.S. banking system for the first time, but it has never left the U.S. clearing system—this distinction only reveals itself during crises.

II. Three Crises, Three Layers of Power

Usually, a dollar in cash, a dollar in a New York bank account, and a dollar in a London bank account look identical, and no one thinks about who is backing them or what systems they must go through to actually access the money. Crises are the only things that can tear this layer apart.

Clearing Power: A Promise of "I Owe You" Does Not Equal Money Received

On June 26, 1974, in New York, morning. A group of traders in the trading hall were unaware that the dollars in their accounts would no longer be received.

A few hours earlier, a foreign exchange transaction they conducted with the German Herstatt Bank had completed delivery of marks in Frankfurt, and they were just waiting for New York to pay the corresponding dollars. Due to the time difference, the afternoon in Germany was morning in New York. And just in the afternoon in Germany, a regulatory agency ordered the Herstatt Bank to cease operations immediately.

The New York traders received not money, but a bank that no longer existed. They realized that what they held was merely a promise of "I owe you," not the money itself. Between the promise and the receipt lay the counterparty, correspondent banks, time zones, and the clearing system—if any one of these links collapses, the rights on the ledger do not automatically turn into spendable dollars.

This incident later led to the establishment of the Basel Committee on Banking Supervision and left behind a term still in use today: Herstatt risk. It clarified the most fundamental layer of power within the Eurodollar system: the ability to issue dollar payment promises does not guarantee that the money will actually arrive; whoever controls the clearing holds the real power.

Last Liquidity Power: Having Money on the Books Does Not Mean You Can Borrow

In 2008, European bankers found themselves in a strange predicament.

On their books, they held vast amounts of dollar assets—U.S. mortgage-backed securities, corporate bonds, various dollar-denominated notes. Yet behind these assets, there were no stable dollar deposits to support them; they relied entirely on short-term financing from money market funds, commercial paper, and interbank borrowing, like walking a tightrope to stay alive.

Normally, this approach had low costs, provided that the channels for borrowing remained open. After Lehman Brothers collapsed, the market began to doubt the value of the assets held by each bank, and short-term fund providers collectively stopped renewing loans. Overnight, these European banks, holding trillions in assets, found themselves unable to produce cash to repay maturing liabilities, plunging the world into a "dollar shortage."

An awkward question arose for everyone: these banks were not in the U.S. and were not under the Federal Reserve's jurisdiction, so who would provide them with dollars?

The answer was still the Federal Reserve. Through central bank currency swaps, the Fed lent dollars to foreign central banks, which then distributed them to local banks. In December 2008, the swap balance once surged to about $583 billion, accounting for a quarter of the Fed's total assets at the time; when the pandemic hit in 2020, the same mechanism was reactivated, with the balance nearing $450 billion.

The truth was fully exposed at this moment: offshore banks could create dollar deposits through lending but could not produce the "hard dollars" needed for actual settlement and debt repayment. When everyone simultaneously sought to exchange their "bank's promise" for "top-tier real money," the only entity that could cover it all was the Federal Reserve—this is the second layer of power: the last liquidity provision power. Whoever can backstop in a crisis is the true pillar of this system.

Pricing Power: Whoever Calls the Shots Wins Half a Century

London bankers quietly held a third asset.

The financing costs reported by London banks later evolved into LIBOR—the global benchmark for pricing loans, bonds, and derivatives, with the scale of financial contracts linked to it reaching hundreds of trillions at its peak. This meant that London banks not only created dollars outside the U.S. but also gained the power to price dollar financing for the entire world.

However, this pricing mechanism had a fatal flaw: it relied on numbers "self-reported" by banks, not on actual transaction data. When the scandal broke, this flaw was thoroughly exposed: Barclays alone paid $450 million in fines for manipulating quotes.

After the collapse of trust, the LIBOR based on verbal promises was replaced by the SOFR, which was supported by actual repurchase transactions. In June 2023, the dollar LIBOR pricing panel was permanently suspended. Eurodollars did not disappear, but the era of London banks calling the shots came to an end.

Herstatt, the dollar shortage, and the end of LIBOR—these three events exposed the three hidden layers of power: clearing power, last liquidity, and pricing power. Offshore banks gained the ability to expand dollar credit but never truly held the ultimate control of this system. The next financial innovations will first change not this power structure but the line closest to ordinary people: the relationship between you and your dollar account.

III. Dollar Accounts Entering Mobile Phones

In the past decade, the most successful aspect of fintech has been compressing an entire set of banking procedures into a mobile app. Opening accounts, exchanging currencies, and making cross-border transfers that used to require visiting branches, filling out forms, and waiting days can now be completed in minutes. The entry point for dollar accounts has moved from counters to software interfaces.

Revolut and Wise are representatives of this generation, appearing as twin brothers: both can store multiple currencies, exchange money, make cross-border transfers, and facilitate card payments, making it nearly indistinguishable for ordinary users. However, the legal structures supporting the strings of numbers in these two apps are entirely different.

Revolut chose the path of "becoming a real bank." In 2018, it obtained a banking license in Lithuania, allowing it to provide banking services in multiple European countries—qualified users' deposits can become real bank deposits protected by local deposit insurance. By 2026, it began gradually bringing in UK users through a banking entity in the UK. The result is that the same app may have balances that are fundamentally different under different regions and legal entities—some may already be protected bank deposits, some may still be electronic money, and others may just be client funds held by partner institutions.

Wise has taken a different path; it resembles an "electronic currency machine" that does not convert users' money into bank deposits that it absorbs. The balance you see in Wise represents a promise of electronic currency that Wise commits to pay you, and the customer funds supporting it must be kept separate from Wise's own money. If Wise goes bankrupt, you should, in principle, be able to recover your money from this segregated asset first—however, whether you can retrieve the full amount and how quickly depends on the clarity of the accounts and the smoothness of the local bankruptcy process.

One approach aligns more closely with traditional banks, relying on heavier regulation and deposit insurance for backing; the other does not engage in bank-like credit expansion, relying instead on fund segregation to uphold its promises. The distinction lies in: who provides the backing, how the money is stored, and from which path users will retrieve their funds if the platform shuts down.

However, both share a commonality—the account records always reside in the institution's own database. You can initiate actions through the app, but account opening, freezing, transferring, and withdrawals ultimately depend on the institution's system. What you possess is a contractual right, not direct control over the underlying funds.

Traditional fintech has moved dollar accounts from counters to mobile phones but has not altered the question of "who holds the custody." It redesigned the entry point without redistributing control, which is the significance of the stablecoins and self-custody wallets that are emerging next.

IV. Stablecoins: From Closed Accounts to a Borderless Ledger

The true breakthrough of stablecoins is not the creation of a risk-free currency but the transformation of how the dollar's "payment promise" exists and circulates.

Banks and electronic money institutions keep their accounts in their internal ledgers—you can check the app anytime, but to move the money, it still has to go through the institution's system. Stablecoins encapsulate the dollar's payment promise in a token that can be directly held and transferred on a public blockchain. What you hold is no longer just a line of numbers in an institution's database; it is an asset that can freely circulate between wallets, exchanges, and on-chain protocols.

Eurodollars moved dollar credit from New York's ledger to London's; stablecoins take it a step further—moving dollar balances from any institution's ledger to a public ledger that no one exclusively owns.

To be more precise, stablecoins split "one dollar" into two components: payment and transfer. The payment half is not new—issuers back their promises with reserve assets, primarily U.S. Treasury bonds and bank deposits, held in traditional financial institutions, and redemption must still go through traditional channels; this half has never left the old world. The truly novel aspect is the transfer half: for the first time, dollar balances can move outside any institution's internal system and be directly exchanged on a public ledger. Stablecoins are not "dollar without banks" but dollars whose payment remains in traditional finance while their transfer enters the public ledger.

The driving force behind Eurodollars and stablecoins is the same: the global demand for dollars has always exceeded the range that traditional banks are willing to cover at low cost. Ordinary people in high-inflation countries want to preserve purchasing power, businesses engaged in cross-border trade need to settle payments, and overseas workers want to send money home—they are not entirely cut off from dollars but are often blocked by foreign exchange controls, account opening thresholds, high fees, and slow review processes.

Demand does not disappear just because traditional finance cannot meet it; it seeks new outlets. In the 1950s, this demand found its way to London banks; today, it has found stablecoins and a borderless public ledger.

However, stablecoins inherently continue the "duality" of Eurodollars—global circulation, yet ultimately still needing to reconnect with the U.S. financial system. The reserves of mainstream stablecoins are primarily U.S. Treasury bonds and bank deposits; tokens can run on blockchains worldwide, but reserve custody, asset management, and final redemption remain tightly bound to traditional financial infrastructure. From another perspective, stablecoins have not weakened the dollar system; rather, they are expanding a larger global distribution network for U.S. Treasury bonds and dollar assets. This network is no small business: by July 2026, the total market value of stablecoins is projected to be around $312 billion, with approximately $33 trillion settled on-chain in 2025; the largest issuer, Tether, has exposure to U.S. Treasury bonds of about $141 billion—if ranked alongside sovereign nations, it approaches the scale of the top twenty holders of U.S. debt globally.

Yet, stablecoins are not a simple digital replica of Eurodollars. Eurodollars rely on banks for deposits and loans, expanding balance sheets while bearing credit and maturity risks themselves; mainstream stablecoins are more like repackaging existing dollar assets and redistributing them, supported by reserves like cash and short-term Treasury bonds for redemptions. Their transfer methods are also entirely different; Eurodollars must navigate through correspondent banks and clearing networks, while stablecoins can settle directly on-chain. In the past, to access offshore dollars, you needed a bank account; now, a blockchain address suffices.

Thus, regulation has arrived. This is not surprising; looking back at Chapter Two, the three layers of power of Eurodollars were ultimately reclaimed layer by layer: clearing risks led to the Basel Committee, dollar shortages made the Federal Reserve the backstop of the entire system, and the death of LIBOR took pricing power away from London banks. Regulation does not prevent the birth of offshore dollars, but it does not allow them to grow to a point where they threaten the system without intervention.

The same script is fast-forwarding with stablecoins. The EU, Hong Kong, and the U.S. have successively legislated to define who is qualified to issue stablecoins, what reserves must be held, and whether users can redeem at any time. The U.S. "GENIUS Act" of 2025 even includes bankruptcy rules: compliant issuers, when they go bankrupt, must prioritize stablecoin holders in claiming reserve assets. It is worth noting that holders of London notes waited seventy years without ever reading in any law where they stood; stablecoin holders have only waited a little over a decade for this line. The entry of regulation marks the coming of age for this new dollar.

V. Self-Custody Wallets: Accounts No Longer Need to Belong to Any "Creditor"

Banks, electronic money institutions, and custodial platforms, regardless of their differences, fundamentally share the same relationship with users: you first hand over your assets to them, and they then record a balance for you, with services revolving around that balance. Self-custody wallets change not the dollar's issuer but the control relationship between users and assets.

Self-custody wallets, represented by Bitget Wallet, do not accept your deposits, do not create a platform balance in their own ledger, and do not owe you any stablecoins. Asset records are on the blockchain, and to transfer them, they must be signed with a private key. Wallets provide address generation, key management, transaction signing, on-chain connections, and financial service entry points, but they are not creditors holding your assets.

This changes the organizational logic of traditional financial services. In the past, you had to first become a customer of a particular institution, depositing money into an account it managed to access payment, trading, and wealth management services; now, you can first own and control your on-chain assets and then connect these services through the wallet. Addresses are not tied to any one wallet company; as long as the private key is retained, switching to another wallet app can still access the same address.

Thus, self-custody addresses the question of "who can move this money," while stablecoin issuers address "who ultimately redeems this money." Whether the reserves of stablecoins are sufficient, whether issuers can redeem, and whether regulators approve are still determined by the issuer and legal structure; wallets address another layer of risk: whether you must hand over asset control to a platform to use financial services.

This is the fundamental distinction between self-custody wallets and all past financial accounts: financial services and asset custody have been split for the first time. Payments, trading, returns, and asset management can be integrated into the same entry point, but the control over asset transfer does not need to be relinquished. The responsibility for payment behind the dollar remains with the issuer, but for the first time, the control over account transfer can stay with the user.

Conclusion: The Intersection of Two Migrations

Over seventy years, the dollar has undergone two intertwined migrations.

One occurred in the matter of "who carries the dollar's credit." Eurodollars proved that banks outside the U.S. could also create dollars; fintech companies repackaged dollar accounts into a globally usable software product, and stablecoin issuers encapsulated the dollar's payment promise in a token that can circulate on a public ledger.

The other occurred between "users and accounts." Revolut and Wise changed how ordinary people access dollars, but accounts have always been managed by institutions; stablecoins broke free from the constraints of a single bank account but could still be locked into custodial platforms; self-custody wallets for the first time allow you to use a full suite of financial services without first relinquishing control of your assets.

Seventy years ago, the dollar flowed from New York's ledger to London; later, it entered the databases of fintech companies and, in the form of stablecoins, reached a public ledger. The ledger has changed repeatedly, and the institutions carrying it have also changed many times, but the promise behind the dollar has never disappeared.

The real change occurs in the final step. When stablecoins enter self-custody wallets, you still have to trust that the issuer will fulfill its promise, but you no longer need to hand over the money to another platform for safekeeping. The credit relationship remains, but for the first time, control can stay in your hands.

The dollar has never been able to escape its debtors. This time, however, the account no longer needs to belong to the debtor.