Pennings, A.J. (2026, Aug 18) The Three-Layer USD as the Primary Global Financial Infrastructure. apennings.com https://apennings.com/dystopian-economies/the-three-layer-usd-as-the-primary-global-financial-infrastructure/

Introduction

When people speak of the “US dollar” or “USD” as the world’s reserve and transacting currency, they are usually referring to something far larger and more complex than the notes and deposits circulating inside the United States. The global dollar system is better understood as a three-layer structure with the domestic US dollar, the vast Eurodollar market, and the petrodollar flows that helped supercharge that offshore system.

Together these layers form the primary infrastructure of international finance. And despite the offshore character of much of this activity, the US Federal Reserve remains the system’s ultimate regulator and backstop. This post also includes mention of US treasury backed stablecoins, a possible 4th layer of the USD global infrastructure.[1]

Layer 1 is the Domestic US Dollar

The foundation of the USD is the dollar created and used inside the United States. This is the currency Americans are paid in, pay taxes in, and use to settle domestic contracts, and the currency the US government spends and issues debt in. The Federal Reserve directly controls it through open-market operations, interest-rate policy, reserve requirements, and management of the Fed’s balance sheet. Bank reserves at the Fed, currency in circulation, and Treasury securities form the core of this domestic monetary base.

This layer is relatively well-understood and tightly regulated. Yet it is only the visible tip of a much larger iceberg. It is created mostly by the US banking system as debt, and the US government, which legislates it into existence.

Layer 2 is the Eurodollar, the Offshore Dollar Universe

Eurodollars are US dollar-denominated deposits held in banks outside the United States. The market began in earnest after World War II, when dollars accumulated by Russia were redeposited in London and other financial centers. Because these deposits sat outside the direct reach of US reserve requirements and some regulations, banks could intermediate them more freely and at lower cost using deposits as collateral until US Treasuries added a new instrument in the 1980s when they were computerized.

Over decades, the Eurodollar market exploded. It now encompasses dollar deposits, loans, bonds, derivatives, and funding markets across Europe, Asia, the Caribbean, and beyond. Multinational corporations, governments, hedge funds, and banks routinely borrow, lend, and settle in this offshore dollar space. The great majority of international trade invoicing, cross-border lending, and financial contracts are denominated in dollars that never touch the US domestic banking system in a simple way.

Crucially, Eurodollars are still dollars. They represent claims on US currency or, more precisely, on the creditworthiness and ultimate convertibility associated with the US monetary system. When stress hits, as in 2008 or March 2020, participants scramble for genuine dollar liquidity, and the Fed’s actions become decisive.

Layer 3 is the Petrodollar — The Eurodollar Accelerator

Petrodollars form a powerful subset and historical accelerant of the Eurodollar system. After the 1970s oil shocks, major oil exporters (especially in the Middle East) received vast payments in dollars because oil was, and largely remains, priced and settled in USD. These revenues were recycled into Western banks, US Treasury securities, and other dollar assets.[2]

This “petrodollar recycling” poured enormous liquidity into the offshore dollar markets and reinforced the dollar’s central role in commodity trade. The arrangement was mutually convenient as oil producers gained a deep, liquid market for their earnings, while the United States and the broader Western financial system absorbed the capital and maintained demand for dollars. Even as energy markets have transformed and some bilateral non-dollar experiments have appeared, the structural link between oil (and other major commodities) and the dollar continues to feed the Eurodollar system.

Layer 4? Treasury-Backed USD Stablecoins — The Digital Extension

Regulated USD stablecoins fully backed by short-term US Treasuries and cash equivalents represent the newest emergent layer. Under the GENIUS Act (signed into law in July 2025), permitted payment stablecoin issuers must maintain 1:1 reserves in high-quality liquid assets—primarily US currency, insured bank deposits, short-term Treasuries (generally maturing in 93 days or less), certain repurchase agreements, and limited government money-market funds. Redemption at par is required, and passive yield on the stablecoins themselves is restricted.

The Clarity Act (Digital Asset Market Clarity Act), which as of August 2026 has passed the House and advanced in the Senate but awaits full enactment, would further clarify market-structure rules, regulatory responsibilities between the SEC and CFTC, trading-platform obligations, and the treatment of these stablecoins within the broader digital-asset fintech system.

These stablecoins function as a programmable, 24/7, blockchain-native form of dollar claim.

They extend the Eurodollar function into digital rails. This extension enables fast cross-border settlement, remittances, trade finance, and on-chain activity while remaining firmly anchored to Layer 1 reserves and US regulatory oversight. In doing so, they also reinforce Layer 3 dynamics by offering energy producers and commodity traders a more efficient way to hold and recycle dollar revenues.

The Federal Reserve as Primary Regulator

Although a huge share of dollar activity occurs offshore and beyond the Fed’s day-to-day supervisory perimeter, the Federal Reserve regulation and lender of last resort. Several mechanisms make this true. US monetary policy sets the global risk-free rate and influences dollar funding costs everywhere.

The Fed’s dollar swap lines with major central banks inject emergency liquidity into the Eurodollar market during crises.
American banks and their foreign branches remain subject to US regulation and can transmit Fed policy into offshore markets. In extremis, the credibility of the dollar rests on the Fed’s willingness and ability to act as backstop—something private offshore markets cannot replicate.

In short, the offshore layers expand the dollar’s reach and elasticity, but they do not escape the gravitational pull of US monetary policy and institutional power.

Why This Three-Layer Structure Matters

This architecture explains several enduring features of the global economy. It delivers deep, low-cost liquidity and standardized settlement that no other currency currently matches at scale. It confers on the United States what Valéry Giscard d’Estaing famously called an “exorbitant privilege,” the ability to borrow cheaply and run persistent deficits while the rest of the world holds dollar assets. It also creates channels of vulnerability. Stresses in Eurodollar funding can rapidly transmit globally, and the Fed’s decisions ripple far beyond US borders.

Understanding the dollar as three interconnected layers—domestic money, offshore Eurodollars, and energy-linked petrodollar flows—clarifies both its resilience and its points of friction. The system is not a simple national currency that happens to be used abroad. It is a layered global financial infrastructure whose center of gravity remains the United States and its central bank, even as the bulk of daily activity occurs far from American shores.

Any serious discussion of de-dollarization, multipolar finance, or the future of international monetary arrangements must begin with this more accurate map of how the “dollar” actually works.

Notes

[1] I find that many people are not aware of the complexities of the US dollar operating globally.
[2] My spreadsheet was specifically focused on the emergence of the petrodollar and how it broke down the PTTs and helped create the global Internet.
AI Prompt(s) Expand on the argument that the “USD” is the combination of 1) the domestic US dollar, 2) Eurodollars, which includes the 3) petrodollars, recognizing that the US Federal Reserve is still the primary regulator of the global currency. How will US dollar as stablecoins with US treasury backing fit into this mix if the Clarity Act passes?

© ALL RIGHTS RESERVED

Not to be considered financial advice. AI is often used, and results are thoroughly interrogated. Links are used for some citations.

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Anthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea and a Research Professor for Stony Brook University. He teaches AI and broadband policy. From 2002-2012 he taught digital economics and information systems management at New York University. He also taught in the Digital Media MBA at St. Edwards University in Austin, Texas, where he lives when not in Korea.

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Category: blockchain, democratic political economies, dystopian economies, enabling frameworks, financial technology, smart new deal, spreadsheet logic, strategic communications, sustainable development, technologies of meaning, telegraphic political economy
Tags: eurodollars > petrodollars > Stablecoins > USD

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