Peterson Institute for International Economics: Trade Finance, CBDC, and the Dollar's Future

Most crypto policy debate in Washington is conducted in the language of securities law, banking regulation, and consumer protection. The dominant policy questions are: Is this token a security? Which agency has jurisdiction? What disclosures should exchanges make? These are legitimate and important questions. They are also a limited lens for understanding the macroeconomic implications of digital currencies for the international financial system.

The Peterson Institute for International Economics — PIIE, universally known in Washington as “the Peterson Institute” — brings a different vocabulary to this debate. Its researchers think in terms of exchange rates, capital account dynamics, reserve currency competition, and the macroeconomic mechanics of monetary systems. When PIIE applies this vocabulary to digital currencies, the resulting analysis addresses questions that securities lawyers are not equipped to answer and that domestic financial regulators rarely think about.

Adam Posen and the International Economics Mission

Peterson Institute President Adam Posen is a macroeconomist with extensive experience in international monetary policy — including as an external member of the Bank of England’s Monetary Policy Committee. His leadership has maintained PIIE’s focus on rigorous international economics rather than the domestic financial regulation questions that dominate many Washington think tanks’ crypto work.

Posen’s own intellectual concerns about crypto have focused primarily on systemic risk and the implications for the dollar’s reserve currency role — topics where PIIE has distinctive analytical capacity. His skepticism about crypto as a monetary phenomenon is grounded in macroeconomic theory about what gives money its value and stability, rather than in regulatory or consumer protection concerns.

PIIE’s staff economists bring expertise in currency competition, cross-border capital flows, and international monetary cooperation that is rare in the crypto policy ecosystem. The combination of this expertise and PIIE’s Washington location and policy influence gives its international economics analysis of digital currencies an unusual weight in policy discussions.

CBDC and the International Monetary System

PIIE’s CBDC research engages with questions that domestic-focused analysis typically ignores: how would widespread CBDC adoption affect international capital flows? Could CBDC dollarization — the adoption of foreign CBDCs in countries with weak domestic currencies — undermine national monetary sovereignty at scale? And what are the implications for the international monetary system if the major economies develop incompatible CBDC architectures?

The capital flow question is particularly important. The current international monetary system relies on friction — the time and cost of moving capital across borders provides a natural buffer that prevents sudden, large-scale capital movements from destabilising exchange rates or financial systems. CBDCs that enable instantaneous cross-border capital movements could, in principle, significantly reduce this friction. The implications for exchange rate volatility, monetary policy effectiveness, and financial stability in smaller, more capital-constrained economies are significant and underexplored in most CBDC policy discussions.

PIIE has been among the few institutions to take seriously the dollarization risk from stablecoins. If dollar-pegged stablecoins achieve widespread adoption in countries with inflation-prone domestic currencies, those countries effectively import US monetary policy — inheriting dollar interest rates and dollar monetary conditions without any mechanism to adjust for their specific economic circumstances. This is not a hypothetical: Turkey, Argentina, and several African countries have seen significant stablecoin adoption driven by exactly this dynamic. PIIE’s analysis of these cases connects economic theory about currency competition to real-world policy implications in ways that domestic US financial regulation analysis does not.

The Dollar’s Reserve Currency Role

The question of how digital currencies affect the dollar’s reserve currency role is PIIE’s most distinctive analytical territory. The dollar’s international role provides the United States with what Valery Giscard d’Estaing famously called an “exorbitant privilege” — the ability to borrow cheaply in its own currency, the power to impose financial sanctions through payment system control, and the macroeconomic flexibility that comes from issuing the world’s primary reserve currency.

PIIE researchers have examined multiple mechanisms by which the digital currency landscape could affect this privilege. A widely-adopted Chinese CBDC that settles international trade in yuan rather than dollars would reduce dollar demand. Multi-CBDC platforms that enable dollar-free settlement would reduce the volume of international transactions that touch the dollar payment system. Even dollar-pegged private stablecoins create ambiguity about how US financial sanctions apply, potentially reducing the dollar’s utility as a sanctions instrument.

The PIIE analysis does not predict imminent dollar displacement — the network effects of dollar dominance are large and persistent. But it takes seriously the possibility of gradual erosion and argues that US policy should account for this risk rather than dismissing it. This is a more nuanced position than either “crypto will replace the dollar” (implausible) or “dollar hegemony is unassailable” (complacent).

The Macroeconomic Lens in a Securities Law Debate

PIIE’s core contribution to crypto policy debates is ensuring that macroeconomic and international monetary considerations are not crowded out by the securities law and consumer protection framing that dominates Washington crypto discussions. The question of whether Coinbase should be registered as an exchange under the Securities Exchange Act is genuinely important. So is the question of how dollar-pegged stablecoin proliferation affects the monetary sovereignty of developing countries — a question that PIIE is better positioned to answer than any securities regulator.

For policymakers and practitioners trying to understand the full implications of digital asset regulation, PIIE provides the international macroeconomic dimension that most domestic analysis leaves on the table. Its research is a corrective to the jurisdictional and institutional biases that shape which questions Washington’s regulatory debate asks.