World economy: can the digital dollar USDT suppress the de-dollarization trend?
A little trip down history lane: the dollar supremacy
The US dollar (USD) was named the universal currency in order to make world trade easier in 1944 with the Bretton Woods system. However, as the years passed, inflation and financial crisis happened and unfairness was drafting from afar. Even the French president Giscard d’Estaing called it the “exorbitant privilege” that the US holds, especially when it comes to importation taxes.
Although it was a fact that the US was as much as its dollar at advantage, things turned sour when the petrodollar was established in the 70’s. The US were ruling the currency market and when the euro was created in 2002, it was only normal for them to feel threatened.
A year later, the Iraq war was declared on some never found weapons but oil providing ground. By then, all was good for the USD — its first place in the world remained and was saved.
Rising the issue: the de-dollarization
Why has the USD become so taboo and left aside recently?
Few reasons
- Its purchasing power never truly recovered from the 2008 financial crisis and has been dropping ever since — per se, $100 from 1900 is about $3 nowadays (2021), another way to put it, $100 from 1900 is about $2,719.14 today!
- Inflation is hard on every country, especially the ones with a weaker economy. Wall Street has been the core origin of the two most recent world financial crises (1929/ 2008). It was only logical for some countries to look to differentiate themselves from the US.
- A new economy with 3 of the world's strongest currencies is on its way. China is increasing its gold reserve and is catching up with Europe and has successfully overpassed the US one. The new economy will be drafted on the USD, the euro, and the yuan most likely.
- The dollarization of certain countries like El Salvador did not help the country’s financial system even after dropping their national currency to the USD in 2001.
- The USD is too centralized and gives too much power to the US.
Consequences
- El Salvador named Bitcoin as the second legal tender next to the USD
- Russia will start to accept Euro for their gas in order to reduce the US power
- Russia crypto exchanges and thus reducing the need for dollars
- The USD value keeps on going down, inflation never truly stopped
Solution: the Crypto Dollar: Tether
Crypto is the solution, that is a fact
Countries struggling with the USD and weaker financial systems opted for the crypto solution. In South America and Africa, crypto exchanges have been set up for the population to allow them to access banking and remittance services without excessive fees.
Crypto is accessible to anyone and everyone, everywhere in the world!
Fun yet interesting fact: Moeda is operating in South America and KoinKoin in Africa, yet they are linked by an Asian company which is their open-source crypto platform provider. (HollaEx)
The core solution of crypto is the decentralization
As mentioned earlier, many countries have chosen crypto as a parallel economy to sustain their inhabitants and businesses like El Salvador.
Here is a quick explanation of why crypto is a game-changer and what it can bring to the traditional banking and fintech world.
The blockchain is basically a ledger and nothing more. The main attribute of this ledger is that it is near unhackable and that once something is on the ledger it simply cannot be erased or changed and this because of its main attribute: decentralization, No one but also everyone can control it. In the case of bitcoin it works on ‘proof of work’, but there are other systems being developed like ‘proof of stake’ where contributors to the network gather transactions from the ledger together and create blocks for the blockchain. To learn more in detail, here is an interesting link.
Decentralization gives responsibilities to the contributors and anyone can be a contributor. When transferring money or receiving some, the blockchain does it in a faster, cheaper, and safer way than any other remittance provider — no banks are to put their fees or taxes. The client is literally in the total power of its finance.
The dollar is doomed? No, not yet. A new crypto USD is on the rise!
As imagined, with crypto rising — governments started to worry over their ability to keep a certain control on their population and that’s when the Central Banks Digital Currencies (CBDC) were created.
They are indeed cryptocurrencies but work a bit differently. Bitcoin is subject to high volatility and volatility is not sustainable in an economy therefore to create their CBDC stablecoins were the chosen feature.
A stablecoin is a crypto coin pegged to another currency that could be either fiat or crypto, regarding the digital USD also called Tether their stablecoins are pegged to the USD meaning that 1 Tether equals 1 USD.
Algorithms work toward keeping the value stable to avoid volatility, adding more into the reserve of Tether or burning it when too many are in the system. This method relies highly on trust but somehow does make sense although they are central banks' currencies therefore controlled by these institutions.
The advantage of the digital dollar compared to the classic dollar is its blockchain: the ledger that cannot be modified, canceling all possible fraud to happen. The traceability of the digital dollar is a strong attribute and one of its down points as some people can see it as being spied on.
Being protected and traced or being vulnerable and not traced, it is up to people to choose.
Crypto is sustainable: towards a multi-blockchain world
Understanding the core of crypto is that everyone can be a part of its economy and regain control over it.
This is because, by definition, crypto assets are open-source and everyone can use and build with them and many providers have developed their own crypto solution. One of them is the HollaEx Kit is a self-deploying crypto exchange in itself. The exchange kit has a high level of automation and all deployers need to do is follow the step-by-step wizard instructions. There are many other providers available such as Alphapoint or even Uniswap can be used to operate your own exchange.
Conclusion
The USD has its challenges and a lot of countries want to de-dollarize but with the adoption of Tether and other USD stablecoins the dollar may see a new life. Fintech will likely continue to use USD but in its blockchain form, could it be USDT or USDC or something more ‘official’?
In conclusion, yes, de-dollarization is really happening, but a new version, a crypto US dollar version is coming and operating through crypto exchanges globally.
