The Global Greenback
Think about this, you are a nation. Not any nation, but a developing one in fact, you have a vigorous, growing economy there is a lot of activity and ambition. Many of your people want to work hard, escape poverty and move up in life. To do this, you need to attract industries, and when industries arrive they will want to make stuff. Unfortunately we need input stuff to make output stuff. After all the usual equation there is:
Where I is the input, H is the human effort, and O the output.
But wait! you don't really have all the "I" you need. By providence only few nations are blessed to have all the inputs they would want for their ambitions within their sovereignty. Of course, there is very little you can do to change that. You could go to war, but that's kind of old fashioned and then you have to do a lot of explaining to the UN and other court in Hague, it's just a big mess.
Honestly, the plainest way out of this predicament is present in participation in the global market, if you're a buyer with the correct price, you will find a seller, et voila, it's (almost) a deal. While you are working out the details, you might take a step back, and look upon the agreement. You the buyer, will (usually) commit - on the international market - to buy goods with a specified amount of United States Dollars. But wait, neither you nor your counterparty really believe in the fiction of the dollar. Neither of them actually issue USD, but happily transact in it all the same.
Why Is This the Case?
United States Dollar is what is known as the global reserve currency. Through a combination of factors like the colonial destruction of Asian wealth, WW2 leaving europe in literal shambles, and the subsequent Bretton-Woods Agreements, and an arrangement of convenience called the Petrodollar. Today most things in the world are brought and sold against their worth in United States Dollars. Of course, this is an article of great privilege for Americans (some might even call it exorbitant). The world is ever-ready to absorb their deficit spending. Their central bank has leeway to print money knowing the world is a consumer. The Americans have the privilege of giving the world essentially IOUs in exchange for goods and services.
The ball got rolling after 1945, with the defeat of Germany and Friends in Europe, and WW2 coming to an end Europe needed some serious rebuilding. Most of it was financed by the Americans, in US dollars, in exchange for preferential trade rights as a part of a System called Marshall Plan. American dollars would flow to Europe, and rebuild it. European firms would work closely with their American counterparts, and buy their products. Preferentially. They would make it ever so slightly (understated) for American businesses to work in Europe by committing to American standards, and American technology use. US Goods, US Shipping, US Machines, and the US Dollar started dominating the Atlantic trade as the limping European economy slowly rebooted itself on American capital. The only serious contender, the British Pound, effectively died with the Empire. Europe was (until the foreseeable future) tethered to the US dollar.
The Dollar, in turn, had (until 1970s) one last sobering tether to reality. The Gold standard which mandated a fix worth of the dollar compared to gold. This however had its own problems since the amount of gold being mined could not keep up with the dollar demand stemming from the growth of Atlantic and subsequent international trade…
An interesting aside here is to read about the Triffin Dilemma which explains why countries who's currency forms the bedrock of international exchange often face issues.
… The pressure finally broke Nixon into moving off the gold standard. Effectively making dollar a free float, but the network effect had taken hold until then. The vast amount of global trade being conducted in dollars meant that there was a never ending demand for dollars.
Even if there was ever a blip within this network, the Americans worked out a hedge by betting on the consumer worlds hunger for energy. By convincing the oil rich nations of the Middle East to denominate their oil in United States Dollars, effectively ensuring that the US dollars remain the central peg to the world's energy demand. This system came to be known as the petrodollar.
Not So Swift Eh?
Today the network effect of the US Dollar is stronger than ever. United States is the linchpin of global finance. To the extent that a housing crisis in the United States in 2007-08, effectively became a global recession. Today major statistics related to economies and finance are calculated in US Dollars. US Treasuries are possibly the most sought after security in the world. The American consumer has access to an unparalleled array of goods available at throwaway prices, denominated in their money. The US dollar is tender, legal and, not-so-legal in many places in the world. Consequently American firms have near unlimited market access to large parts of the global economy, and American affiliated banks, the largest money movers.
Most global money movement today happens through a network called SWIFT. It stands for Society for Worldwide Interbank Financial Telecommunication. Think of it like WhatsApp but for banks, and there's pretty limited groups. Also much like old WhatsApp, SWIFT, just moves messages, it's the participating banks responsibility to move the actual money.
Now imagine a request from a small time bank in Laos, to move money to another small bank in Argentina. It is unlikely that the Bank in Laos, is actually directly connected to the Bank in Argentina or hold an account for each other. It's like two people on the WhatsApp network who don't really know each other. However, if both the banks are onboarded onto SWIFT, they don't really need to. The bank in Laos, can talk to a bigger bank in Laos, which can talk to say someone like JP Morgan, which can talk to a big bank in Argentina, which can then talk to the small bank. Like playing a game of passing the parcel over WhatsApp.
Of course, if your country has a monopoly on global financial trade, you could almost be guaranteed that a transaction is going to come to your country, and end up being carried out in your currency at some stage. Since it's being carried in your currency, you could in theory look into it, and block if you happen to dislike the receiver. Being the world's largest purveyor of financial services does have some perks.
The SWIFT Network is a massive instrument of the United States' foreign policy, the knowledge that any international transaction is likely going to end up navigating through SWIFT allows the United States immense leverage. Leverage which the United States has rather happily wielded over its conventional (at least according to pop culture) rival Russia. This has led to a sort of Sobering up within the world of International Finance. Where it is becoming clearer that a single point of failure on the US Dollar is probably not a good idea. Especially in a world full of uncertainty.
Build Bridges
The SWIFT Framework, also unlike its name, is not particularly SWIFT, because of intermediary routing and required inter bank verifications, and compliance checks SWIFT payments can sometimes take time to clear, and there's also the issue as mentioned earlier. Now if only there were a sort of distributed ledger, all central banks could maintain of their forex transactions, where it would be easy to consensus verify transactions and everything could be recorded securely and immutably.
If a light just popped on in your head, you might be hearkening back to the good old crypto day. When people bought the rights to monkey portraits for exorbitant sums, and random hackers scalping GPUs made gaming hell for everyone. This is of course, not counting the random tweet from Elon Musk which would send random cryptocurrency prices shooting to the moon on a moment's notice.
In spite of the Mania, it turns out, a distributed ledger is kind of useful when you want - wait for it - a distributed ledger. The sort that can keep track of massive currency moves, and be auditable and verifiable for correctness, and can do some pretty cool stuff like smart contracts.
That is the central idea behind M Bridge. M bridge, is a distributed ledger, banks across the world can see. When they want to transfer money using the ledger, they can do so by building smart contracts on it. Let's take our old example. On the M Bridge system, small bank in Laos just has to fill out what amounts to a form with the address of the receiver, and amount and the smart contract builds the rest of the transaction.
Pretty neat eh. Since the contract is pretty programmable (it is after all a program), it can also do things like specify an intermediary, let's just say Lao Bank, and Argentine Bank have a preferred bridge currency. The smart contract can encode that bridge currency, and check if there's any party with sufficient bridge currency required, and within acceptable fee ranges, and arrange for the transfer in that medium. The medium currency issuer can capture its fees and transaction costs within the same contract.
The Way Forward
This does sound alluring in theory, and the numbers support it. The growth is tremendous. A volume growth of 2500 times from 2022 to 2025. The speed of transactions is also a massive selling point. The typical transaction on M Bridge being essentially a program run by a computer takes seconds. The average SWIFT transaction is by comparison a bureaucratic nightmare and can take multiple days to process, can fail at multiple stages, and take days to roll back
From inception, the M Bridge payments system has evolved from a pilot, to a genuinely complete and in use payment System which now has handled the cumulative volume in the Billions of US Dollars. The Bank of International Settlements which incubated the project has now left the project it to its own device where it steadily matures.
Unfortunately M Bridge is pioneered by China, and China does not enjoy the sentiment support enjoyed by the US. American institutions are globally trusted and enjoy unparalleled access to global markets, Chinese institutions both state and private are looked on with suspicion. Currently on board M Bridge are China, Hong Kong, Thailand, UAE, and the Saudis who use it to transact a part of their trade. Not the most appealing list of trade partners with their standings on values like liberty, and free markets. There is also the fear of Yuan domination. Functionally 95% of M Bridge volume is in Chinese Yuan, which makes it seem like Chinese Cyber SWIFT more than a genuinely decentralised network. The framing of M Bridge as an escape hatch from US Sanctions also does not make for good advertisement. Especially given current US temperamental volatility, for the lack of a polite phrasing. The US Dollar's network effect still lingers strong and is functionally inescapable for global trade. But as a pure concept M Bridge is appealing. The distributed ledger and algorithmically guaranteed sanctions independence is almost a dream come true, especially in the wake of volatile and hawkish US foreign policy.