TheChek News Flow

Canadian AI startup Cohere is taking over Germany-based Aleph Alpha with support from Schwarz Group (parent company of grocery chain Lidl). With the blessing of their governments, the companies intend to offer a sovereign alternative to enterprises in an AI landscape dominated by American players.

As companies that develop large language models, Aleph Alpha and Cohere have been hometown stars, while still lagging far behind OpenAI and the likes globally. But similarities aside, this isn’t an alliance between equals. Last valued at $6.8 billion, Cohere will lead the new entity that will incorporate Aleph Alpha, subject to approval by authorities and shareholders.

Schwarz Group, one of Aleph Alpha’s main shareholders, is already fully onboard with the deal. The retail giant will now become a strategic backer of the new entity with €500 million in structured financing (approximately $600 million) — and with expectations that it will make use of STACKIT, the sovereign cloud service of its IT division Schwarz Digits.

As part of its investment, Schwarz Group is also acting as Cohere’s lead investor in the Series E round of funding — and it already set the price tag. According to German business media outlet Handelsblatt, the term sheet anchors the valuation at around $20 billion.

This would be a significant leap that combined revenue alone can’t justify. While Cohere reported $240 million in annual recurring revenue in 2025, Aleph Alpha had previously generated little revenue and significant losses. But investors are betting that teaming up will improve their odds.

They may not be alone in their thinking. Elon Musk’s AI startup xAI has reportedly discussed a three-way partnership with France’s Mistral AI and Cursor, which SpaceX recently secured the option to buy. But it remains unclear whether the French company would be interested in risking undermining the very positioning as an alternative to U.S. tech that boosted its revenues.

Cohere, too, is hoping to get tailwinds from enterprises looking for alternatives to AI providers that may not meet their requirements when it comes to privacy and independence. The new entity plans to target highly-regulated industries — including defense, energy, finance, healthcare, manufacturing and telecommunications— as well as the public sector.

Aleph Alpha also developed specialized language models targeting enterprises and public institutions in Europe, such as the PhariaAI suite. A subsequent pivot and the departure of its cofounder and CEO Jonas Andrulis made its strategy and leadership less clear, but its team of 250 people and their expertise could still complement Cohere.

“Their focus on small language models, European languages and tokenizers is a really complementary one to our own, which is more of a general focus on large language models,” Cohere CEO Aidan Gomez said in a press conference announcing the plans on Friday.

The press conference’s lineup was also telling. Rather than Aleph Alpha’s co-CEOs, it was co-founder Samuel Weinbach who joined Gomez on stage alongside Schwarz Group’s chief digital officer Rolf Schumann. The event also featured German digital minister Karsten Wildberger and his Canadian counterpart Evan Solomon.

Amid growing tensions with the United States Canada has been increasingly keen to sign bilateral initiatives with a variety of partners, including Germany. With a shared concern for privacy and security, the two countries recently launched a Sovereign Technology Alliance to “strengthen sovereign AI capacity and reduce strategic technology dependencies.”

The question remains whether European organizations will view an initiative involving Canada as sufficiently sovereign, or whether they will trust that the alliance will remain transatlantic in the long run. According to Gomez, “Cohere will become a Canadian-German company.” But ownership could soon become less clear if an IPO is still in the cards.

As Apple races to stay competitive in AI while navigating tariffs and supply chain uncertainty, the company’s future is about to shift under new leadership.

On Monday, Apple announced that John Ternus will take over as CEO later this year, succeeding Tim Cook.

Cook transformed Apple into a $4 trillion global powerhouse, expanded its services business, and oversaw some of the most profitable years in tech history. Ternus brings a different kind of skillset. A longtime hardware executive, he has spent his career building Apple’s devices rather than managing the broader business.

Ternus joined Apple in 2001 and rose through the ranks of hardware engineering. Along the way, he has contributed to some of the company’s biggest products, including AirPods, the Apple Watch, and Vision Pro.

His appointment signals a renewed focus on hardware at a moment when Apple is under pressure to define its next era. Ternus will now help determine what that looks like.

Hardware with AI at the center

Rather than trying to compete head-on with companies building the biggest AI models, Ternus may push Apple to focus on the AI-powered devices themselves, whether that be the one in your hand, something you wear, or something that lives in your home.

There’s already a lot of speculation about what Apple could launch next. Ideas floating around include smart glasses, a wearable pendant with a built-in camera, and even AirPods with AI features. According to Bloomberg, the idea is that all of these products would connect to the iPhone, with Siri playing a major role.

Ternus is also expected to push forward on products that have been stuck in limbo. Foldable iPhones are the obvious example. They’ve been rumored for years, and while competitors have already moved ahead, Apple has taken a slower approach, waiting until the technology meets its standards. Reports say it will arrive in September, which means Ternus will be overseeing the launch.

Apple has also reportedly been exploring robotics, particularly for the home. One concept includes a tabletop device with a robotic arm attached to a display, essentially a smart assistant that can move and turn toward you. Notably, this lines up with Ternus’s long-standing interest in robotics. In college, he built a device that allowed quadriplegics to control a mechanical feeding arm using head movements, as reported by the New York Times.

There are also ideas for mobile robots that could follow you around, handle simple tasks, or act like a moving FaceTime screen. Some reports even mention experiments with humanoid robots, though those are likely years away.

While none of these are guaranteed to happen, they do give a pretty clear sense of where Apple’s thinking might be going.

However, ongoing memory chip shortages, President Trump’s frequently shifting tariff policies, and the company’s reliance on Chinese manufacturing could create a challenging period ahead. Roughly 80% of iPhones were produced in China before the tariffs. The company recently pivoted to India, making about 25% of its iPhones in the country last year, according to Bloomberg.

Selling wedding gowns has always been a high-stakes business. New weight-loss drugs make fitting brides for the big day even more fraught.

When Nicole Hamilton found the A-line gown she plans to wear to her wedding reception, she requested a waist roughly 3 inches smaller than her frame.

Hamilton, a product designer in New York, has lost roughly 50 pounds on weight-loss medications in the past few years—including 15 pounds since her fiancé popped the question last May. And she plans to lose more.

But when she went to buy her dress, she ran into a less-than-thrilling hurdle: She had to sign a legal waiver, acknowledging in writing that the gown didn’t yet fit.

Selling wedding gowns has always been a high-stakes business. But these days, outfitting brides for their big day is more fraught than ever because of GLP-1 weight-loss drugs.

With the rise of weight-loss medications delivering dramatic results, future brides can’t say yes to the dress until much closer to their big day. That is forcing bridal stores to stock more dresses to accommodate last-minute weight fluctuations, leaving dressmakers on the hook for an increasing number of rush orders and hurried adjustments.

For two decades, bridal-studio owner Natalie Harris was able to anticipate how a bride’s body would change if she lost five or 10 pounds before her nuptials. Lately, it’s harder to predict.

“They could have been apple-shaped before, and now it’s like their entire midsection is dramatically smaller than it ever was before,” said Harris, the owner of Renegade Bridal & Dye Lab in Houston.

Harris is adapting. She steers brides who are taking GLP-1s toward more forgiving silhouettes, for instance suggesting dresses with adjustable lace-up backs instead of zippers, and prefers cuts that flare at the waist to help mask weight fluctuations.

Her standard timeline from first meeting a bride to delivering a finished dress is three to four months. These days, she fields daily requests from brides seeking accelerated turnarounds—which Harris accommodates when she can. Other brides ask to return their gowns, a request she doesn’t entertain.

“I can’t afford to stock extra inventory. It’s bad math,” she said. That business reality runs counter to Harris’ personal desire to help someone find their ideal dress, she said: “That friction is hard.”

One in 10 couples arranging a wedding this year use the drugs, with an equal share considering it, according to a survey of over 11,500 pairs by wedding-planning platform Zola. For over half of those currently on the medications, the impending walk down the aisle was a primary catalyst for the prescription, the survey found.

On average, wedding dresses cost $2,250, and can reach $10,000 or more for designer gowns, according to Zola. And while the search for the perfect dress may not be as protracted for some brides as it once was, shoppers who are spending thousands of dollars expect precision in every stitch. For dressmakers and tailors called in for late adjustments, that makes their work on the lace, silk and tulle a high-stakes race.

At David’s Bridal, the country’s largest wedding-dress retailer, more brides are starting to shop for their dresses about 45 days before their wedding, compared with the company’s traditional five- to six-month shopping window, said Chief Executive Kelly Cook. And rush orders, with a turnaround within four weeks of a wedding, are up 50% in the last two years, she said. The company is paying for overtime for its more than 3,000 alteration specialists as needed to meet the demand.

The requests from some brides for a compressed timeline are forcing more flexibility from retailers, including a shift in inventory strategy, said Abhi Madan, designer at dress brand Amarra, which supplies specialty boutiques with bridal dresses that retail for between roughly $1,500 and $3,000. Madan said businesses are now forced to have more dresses in stock to accommodate last-minute shoppers, instead of ordering the correct size once the bride-to-be has come in for a fitting.

“We have to take on more inventory risk, we have to be more flexible in the aspect of how the traditional bride orders now,” he said of designers and bridal-gown sellers. “You’re changing an industry that’s always operated on a six- to nine-month timeline.”

Wendy Ianieri-Salerno, who co-owns Darianna Bridal & Tuxedo in Warrington, Pa., has seen some brides shrink so much that tailoring wouldn’t work—they needed to get entirely new gowns.

“It was scary for us because I thought we’re going to either get negative reviews or we’re going to have to refund a lot of money,” she said. Ultimately she has agreed to certain gown exchanges. “We preferred not to, but we really didn’t want to lose that customer-service edge.”

Brides aren’t the only ones slimming down before their big day, Ianieri-Salerno said. Their future husbands often are too. But for grooms, adjusting tuxedos and suits for weight loss is much easier to do. “We can simply and quickly get a replacement in their new size as a rental.”

Some stores shield themselves from liability for a bride’s changing physique with the sort of waivers that Hamilton, the New York product designer, signed when she purchased her too-small, hand-beaded gown. Such waivers existed before the rise of GLP-1s, but are more fraught when a bride is losing a substantial amount of weight. Some users of the drugs report losing a clothing size every two to three weeks.

Hamilton said her shrinking waistline is driven by an overall desire to be healthier, and while it has made dress shopping more complicated, it hasn’t taken away from the excitement of the hunt.

“The size stuff definitely made it stressful in a way that it wouldn’t have been otherwise,” she said. “But I actually enjoyed it for the most part.”

This week, just half of the top 10 rounds crossed the $100 million mark, which is somewhat unusual in this high-flying era for venture megarounds. Nonetheless some large checks did get written, led by Amazon’s $5 billion investment and partnership deal with Anthropic. Other sizable rounds went to companies in sectors including aviation autonomy, vision therapy and AI analytics.

1. Anthropic, $5B, foundational AI: AI giant Anthropic announced that Amazon is investing $5 billion in the company, with up to an additional $20 billion in the future. Previously, Amazon had invested $8 billion in the San Francisco-based company. The latest financing also includes a partnership with Amazon for training and deploying Anthropic’s AI assistant Claude.

2. Reliable Robotics, $160M, autonomous aircraft: Reliable Robotics, a developer of autonomous aircraft systems, raised $160 million in fresh financing led by Nimble Partners. The 9-year-old, Mountain View, California-based company markets its technology for both commercial and defense aviation.

3. Ray Therapeutics, $125M, vision therapy: San Diego-based Ray Therapeutics, a biotech startup focused on vision restoration therapies, secured $125 million in Series B funding led by Janus Henderson Investors. Founded in 2021, Ray has raised $247 million in venture and grant funding to date, per Crunchbase data.

4. Omni, $120M, AI analytics: Omni, developer of an AI-enabled analytics platform, closed on $120 million in Series C funding led by Iconiq Growth. The financing set a $1.5 billion valuation for the 4-year-old, San Francisco-based company.

5. Tortugas Neuroscience, $106M, biotech: Framingham, Massachusetts-based Tortugas Neurosciences, neurology-focused biotech startup, scooped up $106 million in Series A funding. Founding investor Cure Ventures co-led the round alongside The Column Group and AN Venture Partners.

6. AcuityMD, $80M, medtech: AcuityMD, an AI-enabled data and research platform for medtech industry customers, picked up $80 million in Series C investment. StepStone Group led the funding for the 7-year-old, Boston-based company.

7. OpenAI, $75M, foundational AI: Robinhood Ventures announced that it purchased $75 million worth of San Francisco-based OpenAI’s common stock. The shares are owned by Robinhood Ventures Fund I, a publicly traded fund that provides investors exposure to a curated portfolio of private companies.

8. Orkes, $60M, workflow orchestration: Orkes, developer of an AI-enabled software workflow orchestration platform, secured $60 million in Series B funding. AVP led the financing for the 5-year-old, Silicon Valley-based startup.

9. Courier Health, $50M, health tech: Courier Health, a developer of tools to improve patient experience for people with chronic conditions or rare diseases, closed on $50 million in Series B funding. Oak HC/FT led the financing for the New York-based company.

10. Serif Biomedicines, $50M, biotech: Cambridge, Massachusetts-based Serif Bio­med­i­cines, a biotech­ startup focused on Mod­i­fied DNA as a new class of med­i­cines, launched with $50 million in initial funding from Flagship Pioneering.

Neither extreme optimism nor extreme pessimism makes much sense, and neither is easy nor safe to express

Team Trump is taking quite the victory lap as stock markets shrug off the seemingly trivial matters of war in Iran and a global energy crisis and crack through to fresh record highs.

Contracts based on the S&P 500 index, the go-to benchmark of US stocks often gratingly known as “spoos”, are “voting Maga”, according to David Zervos at Jefferies, who adds that doubters have a bad case of Trump Derangement Syndrome, or TDS.

“I realise that it must be super frustrating for all the hyper bearish TDS infused geopolitical gaslighters to see spoos back at record highs,” he crowed in a note this week. “And to be sure, I have no doubt that many of these folks are going to become even more unhinged when this skirmish soon passes and spoos rip further into the green!!”

It’s hard to argue with the facts here, even if you bristle at the sentiment and at being described as “unhinged”. The S&P 500, or spoos, if you insist, is up 4 per cent this year, having more than wiped out a drop in the early stages of the war in March that was never particularly heavy in the first place. Bond markets remain a little more nervy — they have not yet made up the gap back to where they were before the war started, still spooked by the potential for a reawakening of their arch-enemy, inflation.

But the bounce back from more gloomy days is undeniable. And yet the kind of ra-ra enthusiasm on display at Jefferies is rare. It’s worth asking why. Markets have mostly recovered, so why isn’t everyone joining that jump for joy? 

Instead, when you talk to people who analyse or invest in markets for a living, you hear a very consistent tale: we’re worn out, we’re sick of getting beaten up by headlines and by Donald Trump’s social media posts that flip markets higher and lower at random, we’re hopeful that the situation in the Strait of Hormuz is getting better rather than worse, but honestly we have no clue. Oh, and none of the usual shock absorbers are working. In short, investors have no edge, and no hedge. This puts a very firm lid on market enthusiasm.

In fact, a peek under the surface of how markets are performing gives a far less rosy picture than the admirably diehard optimists would like to believe.

For one thing, stocks are lacking a certain “oomph”. Often, investors can rely on prices pushing beyond the performance of the companies themselves. A higher price-to-earnings ratio is a good sign that investors are willing to pay up for the prospect of shinier corporate performances in future. Now, the mood is more humdrum. As Bank of America’s Savita Subramanian pointed out in a recent note, it’s earnings that are pulling stocks higher, not gung-ho hope and hype. The ratio of stock prices to earnings is down around 10 per cent since the end of last year. You know stock markets are feeling a bit poorly when they trade on fundamentals.

The rally is also narrow and, you guessed it, very reliant on the continued dominance of Big Tech. Only 44 per cent of stocks in the S&P 500 are trading at their highest point in four weeks, according to calculations from Sophie Huynh at BNP Paribas Asset Management. And it’s tech that is doing the heavy lifting, both in the US and elsewhere. 

Semiconductor stocks, in particular, are on scorching form. The Philadelphia Semiconductor index has not had a single down day in April and is up by a stonking 30 per cent in this month alone. Rightly or wrongly, we once again have a lot riding on this one, highly uncertain, theme.

Huynh says she remains bearish. The narrow reliance on tech and the failure of traditional hedges such as bonds and gold to counteract shocks leave markets still looking vulnerable to any further turbulence, she believes. “Portfolios are much more naked than before,” she said.

Weird market quirks also make her nervous. The Australian dollar, for example, has bounced back forcefully since the depths of market stress over the war, despite the country’s awkward dependencies on global energy flows. It all paints the picture of a market that is recklessly determined to ignore bad news.

Investors of all sizes appear very reluctant to give up on the formula that has worked so well now for decades: buy dips, and don’t sell your risky stuff in case it bounces back.

“We see this with our clients,” said Vincent Mortier, chief investment officer at Amundi in Paris. “Very few of them have been taking off risk. They don’t dare to, as they don’t want to be surprised. Because of the erratic environment, timing is impossible.”

This might leave asset markets in a spot where they are stuck. Neither extreme optimism nor extreme pessimism makes much sense, and neither is easy nor safe to express as investments. As Kit Juckes, an analyst at Société Générale puts it, markets are “paralysed by binary possibilities”. 

“We are still, unfortunately, watching paint dry,” he said. “Economic data have held up better than feared but that is largely a function of lags, rather than a reason to be optimistic.”

There’s a good chance that markets, like the ships in the Strait of Hormuz, are now stuck.

There’s no such thing as the petrodollar

War on Iran is changing the currency calculations of Gulf energy exporters. But the dollar’s global role depends on far more than the denomination of a barrel of oil

In the summer of 1969 Euromoney published its first issue. The magazine broadened its coverage over time, but in its first few years focused exclusively on the foreign currencies and bonds being traded in the City of London. The editor was a page short of copy when he arrived at the printer, so on the spot he wrote a back-page satire in the voice of a letter home from Herbie, an American sent to London to open an office for the Last National Bank of Boot Hill. It became a regular feature.

Herbie loves his mum and hates warm gin. He’s written as a quiet American, a rube with too much power and too little sense, sweet but unable to find most anything on a map now that he’s left the US. And in February of 1973 he arrives late to his office on Moorgate to discover his local foreign exchange and bond dealers annoyed with him. He has been neglecting their most important new customers: the Arabs, and as poor Herbie writes it, the “Librans”. 

Oil was about $3.60 a barrel in early 1973. In the summer it rose to about $4.30. There’s a dawning sense in the pages of Euromoney that year that there was a new source of wealth in the world, it had to go somewhere, and that somewhere might as well be the City of London. In September of that year a headline in the magazine abandoned all subtlety and asked, simply, “What will the Arabs do with their money?” 

The Yom Kippur war in October and the embargo that followed drove the price of oil above $10 a barrel by early the next year. We now mark the embargo as the beginning of what we call the petrodollar. At first, the word “petrodollar” just referred to a flood of capital from oil sales. Many countries with oil reserves did not have domestic economies big enough to invest in, and so petrodollars sloshed around the global economy looking for a return. They were seen as destabilising, and potentially destructive. 

As western and in particular American diplomats descended on Kuwait and Saudi Arabia in the early 1970s, however, the word “petrodollar” came to mean a broader deal. The Saudis would price their oil in dollars and sink their dollar profits into US Treasuries. In return, the Americans would guarantee security and stability. The US dollar would float on top of the US Navy.

That deal now looks like it may be in danger. The US looks incapable of winning, ending or even articulating the purpose of its war on Iran. Oil production has dropped in Saudi Arabia, and collapsed in Kuwait, Iraq and the UAE. Iran sells almost all its oil to China, receiving not dollars, but yuan. India may now be buying Iranian oil in yuan as well. This month, the ships that did pass through the Strait of Hormuz paid a toll to Iran in bitcoin. 

The US Navy is no longer guaranteeing the free flow of oil from the Gulf. Negotiations over the strait change by the hour, but for at least part of April the US Navy in fact stopped that flow. If the terms of the petrodollar deal no longer hold, it’s not hard to imagine that the deal itself is over: the US dollar no longer sails on carrier groups.

There are several different stories we tell ourselves about why the dollar is so powerful. Most of them start with the assumption of monetary sovereignty. If a state is powerful, so is its money. The economist Robert Mundell wrote that strong currencies were the children of empires, with vast, stable domestic markets, attached to far-reaching merchants. The idea of the petrodollar nestles into this story of currency and empire — the US projects power and stability, and those who enjoy that stability consent to the dollar.

To believe that, however, is to believe that powerful money begins with sovereign decisions. Washington, DC creates its money, then Riyadh and Kuwait City and Doha agree to it. But one of the most powerful things about the dollar is precisely the way the US federal government has relinquished control of it. Banks all over the world create their own dollars, on their own balance sheets, with the tacit acceptance of the Fed and the US federal government but beyond their regulatory reach.

It is this flexibility that has made the dollar a global project for the past half century. The petrodollar story gets cause and effect exactly backwards. Oil producers priced barrels and profits in dollars in the 1970s because an infrastructure of global dollar banking, what we now call the eurodollar system, was already in place — not in New York, but in London.

Already in the summer of 1973, Herbie’s bond and foreign exchange dealers were worried about a share of the business from Saudi Arabia, Kuwait and Libya for the same reason Herbie was in London in the first place. The eurodollar system was already in place, ready to absorb the new profits that came out of new oil wells. A lot of things hang on whether the Strait of Hormuz is open or closed, but dollar dominance is not one of them. The global dollar does not rest on ships and petrodollars. It rests on bankers and eurodollars. 

Dollar dominance is hard to measure, and its most visible indicators aren’t necessarily the most important. Every quarter the IMF publishes the composition of foreign exchange reserves of central banks — what countries hold to support the value of their own currencies. Dollars as a share of those reserves have dropped during the past decade, from 65 per cent to 57 per cent. 

If we think that currency dominance is a sovereign decision, then reserve holdings present an alarming data point — dollar assets such as Treasuries aren’t as important as they used to be. Work by the New York Fed suggests that the aggregate numbers can be misleading, however, and that the decline is driven mostly by idiosyncratic factors, such as Russia’s move away from dollars. 

Reserves aren’t the only way to measure the power of the dollar. Until relatively recently, economists assumed that exporters would write out their invoices in either their own currencies or the currencies of the countries they were shipping to. During the past decade, however, work by several economists, prominent among them Gita Gopinath of Harvard, has described a “dominant currency paradigm”. To avoid currency risk, exporters write out their invoices in a dominant currency — most often the euro or the dollar. 

Data on invoicing is harder to collect than for central bank reserves, but as recently as 2022, according to work by Gopinath and others, almost a quarter of global trade was invoiced in dollars. An estimate from the Atlantic Council has that even higher, above 50 per cent. This, even though only about a tenth of that trade was destined for the US. Dollar invoices don’t rest on diplomacy; they come from merchants, making their own private decisions.

Those decisions, in turn, rest on a kind of dollar dominance that’s even harder to measure. Banks outside the US mark up their own ledgers with dollar-denominated loans, building a vast pool of deposit dollars that keep dollar trade and finance liquid. If we assume that a currency can only be sovereign, produced by a country within its own borders, then these dollars are hard to see. 

But you don’t need permission from the US Treasury or even the Federal Reserve to make a dollar. Any bank, anywhere can add a liability to its own balance sheet and call it a dollar. Banks in fact do this on a scale comparable to what banks do domestically in the US. According to data collected by the Bank for International Settlements, there is approximately $14tn in offshore dollars — eurodollars — booked as liabilities with banks outside the US. Domestically, the Fed and commercial banks together hold more than $19tn. 

That is: about 40 per cent of all dollars are created outside of the US. No other currency enjoys anything close to that privilege. It is difficult to get data in yuan, but there are just over $3tn in offshore euros, the dollar’s closest competitor. And unlike the share of dollar reserves held at central banks, the sum of offshore dollars isn’t shrinking. It’s growing. 

It was offshore dollars that dragged Herbie from Boot Hill to London. Well before the oil embargo of 1973, bankers in the City had already built a sophisticated, flexible system to bank in dollars outside the US. This is the eurodollar system. It does not yet show any signs of collapsing. It does not depend on a decision from Tehran or even Riyadh. 

When it began in the middle of the 20th century, the eurodollar system was hard to understand, and not just for simple Herbie from Boot Hill. To sell something to an American, a German company got paid in dollar deposits at an American commercial bank. In theory, the company would have then started a process through the Bundesbank that would eventually present those deposits to the US Department of the Treasury, for gold. 

But that’s not what happened. In the 1950s, banks in the UK began trading access to deposits in America. European companies, flush with dollar deposits in American banks, simply sold them into a liquid market in London. It was a triumph of practice over theory. Paul Einzig, a regular contributor to the FT, described eurodollars as a “remarkable conspiracy of silence”. Bankers in the City begged him not to write about what they were doing, lest someone important notice. 

In 1960, a Federal Reserve economist returned from London to describe a deep global market in claims on dollar deposits. Dutch, Swiss, Scandinavian and German banks were the most active sellers of those claims, but European companies and foreign subsidiaries of American companies were in the market, too — as were oil suppliers from the Middle East. The Fed economist called these claims “continental dollars”, but reported that some people in the City were already calling them what we call them today: eurodollars.

During the next decade, that market began to add new instruments. In 1963, banks in London issued $164mn in Eurobonds — bonds, issued abroad in dollars. A decade later that had grown to $3bn. Banks in London began making loans in eurodollars, too — producing new dollars. There were arguments at the time over whether that was even possible, but in 1969 Milton Friedman published some basic arithmetic showing that the size of the market for dollars in the City was just too vast. There couldn’t just be claims on existing American bank dollars in London. There had to be new dollars as well. 

A memo in 1971 from the Bank for International Settlements agreed. In 1964 there had been $9bn in total new eurodollar loans — new offshore dollars. By 1970 that had grown to $41.5bn. This was the system that Herbie and his local bond and foreign exchange brokers worked in: flexible, inventive, expanding. 

Eurodollars were convenient for policymakers in the US, because they delayed the return of American bank deposits to Fort Knox. And they were convenient for policymakers in Europe, because they kept profits booked in America from causing inflation at home. It was already clear what eurodollars were good for: mopping up wealth.

Already in December of 1973 you can see evidence of frantic new deals in eurodollars to build new oil infrastructure: $200mn to Pertamina, Indonesia’s state oil company; $12mn to an oil shipping consortium; $35mn to the Sultanate of Oman. Herbie writes home to Boot Hill that he has printed up too many Christmas cards that read “The Problem of Success” and is considering selling some of them to investors arriving from the Middle East.

By February 1974 most of the magazine is dedicated to the question of oil wealth. The value of the dollar has risen, since America is less affected by the price of oil than heavier importers, and it’s clear that the only capital markets with the capacity to take in oil profits are the dollar markets in New York and eurodollar markets in London. Herbie’s bond broker has just returned with a tan from Kuwait, and everyone in the City is buying tropical gear at Moss Bros. Herbie, as usual, is confused. Visitors from the Middle East used to need him to sell their oil, he writes to his mother; now they need him to place their money. He is headed there himself, “crazed with the spell of far Arabia”, as soon as he can find a plane ticket. 

The political scientist David Spiro has collected data on where petrodollars went. In 1974, $11.5bn went to US deposits and Treasuries, and $24bn went into the City. By 1982, the Americans had set up a special facility for the Saudis to buy Treasuries, and there was $94bn of petrodollars in the US. In London that year there was $116bn in petrodollars. Diplomacy can move markets. But it can’t make markets up from scratch.

Currencies aren’t just vibes, powerful in some general sense because countries are. The global market for eurodollars works in specific ways that we can understand. Most significantly, the Federal Reserve has made clear that it will protect eurodollars in a crisis. The Fed maintains swap lines with a few trusted central banks. It swaps dollars on its own balance sheet, temporarily, for euros or yen on theirs. In turn, those central banks can lend dollars to their own commercial banks if their own eurodollars start to look questionable. The Fed does this because a global banking collapse would be bad for Americans, too, but it’s not hard to see why the Bank of England, the Bank of Japan and the European Central Bank appreciate the favour.

At the height of the crisis in 2008, the Fed held $554bn in swaps with other central banks — it had temporarily bought euros, pounds, Swiss francs, Australian dollars, Brazilian reals. Again during the pandemic in early 2020, the Fed held $358bn in swaps. No other central bank offers anything like this protection. 

Since 2008, the People’s Bank of China has extended swap lines to 40 countries. Offshore yuan are hard to measure, but the existence of the swap lines suggests they must exist. But the swaps from the PBoC are untested in a crisis. According to Aditi Sahasrabuddhe of Brown University, one of the authors of a recent working paper on the swap lines, the possibility of a security threat from China acts as a deterrent to signing these swaps. That is: for the dollar, swap lines are a diplomatic tool more powerful than a carrier group.

The global dollar system was not set in motion by a single diplomatic coup — oil for dollars. It was invented quietly by private actors, then endorsed and protected by the US. America didn’t just push its dollar out into the world. It found dollars in London, then decided to protect them. If there’s any threat to the global dollar system, this is where it will show up, in America’s willingness to support dollars created abroad that it doesn’t otherwise regulate. 

As the Trump administration continues to haggle and embargo and improvise in the Strait of Hormuz, the US may be losing power as an empire. But a currency is not the same thing as a country. America extends a financial security umbrella to dollars created abroad. Should it ever become clear that the Fed is not willing to extend the diplomatic generosity of its swap lines — that’s when it would be time to worry.