As always, this article is made for educational purposes. This does not constitute financial advice nor trading advice. Past performance does not indicate future results.
Do not invest more than you can afford to lose. This is not financial advice; always do you own research :)
A couple of months ago, I started the Future is Crazy, a series of posts documenting my predictions of the future in a general 15–20 year time frame.
I fully believe that the future is going to look a lot stranger than we can possibly imagine.
Think about it — norms that my parents’ generation and even my generation grew up on are no longer considered ironclad.
Work is no longer 9 to 5. We’re doing 9–9–6 or working on side hustles or taking up time-boxed gig economy work.
Dating is no longer strictly in-person. More and more people are finding their partners online — through dating apps like Tinder (which imo changed an entire generation’s views on dating with its ‘swipe right’ mechanic) and Hinge.
We could have never predicted trends like this to happen 15–20 years ago.
Anyway, that series sadly fell off, but I’m picking back up with a prediction on a multi-currency future.
Imagine I was pitching a coin to you:
- A centralized network where one entity has unilateral control over the money supply
- A seemingly unlimited supply — 40% of total supply was created in 2020 alone
- A coin that has lost 24% of its value since 2009
- A coin that you can’t even hold — you have to have trusted intermediaries custody it for you
- Has underperformed Bitcoin drastically since BTC’s creation
- Is used for money laundering, terrorist financing, and other criminal activities. In fact, nearly 90% of all criminal activities
Sounds like a bit of a scam, no?
Well, I just described to you the U.S. Dollar.
People are waking up to the story of the U.S. Dollar.
Like any money, the U.S. Dollar derives its value from the mutual belief that it has value — a bit of a recursive loop of value.
And this belief — known as a story in the novel Sapiens — is predicated everyone’s trust in the stability of the United States. Mainly the trust in the U.S. government’s monetary policy and legal structure to retain a prosperous place to do business.
As an American, I’m acutely aware of the benefits that I’ve personally received by the U.S. Dollar being the global reserve currency — an agreement made in Bretton Woods Conference nearly a century ago.
The world runs on the dollar — as a a risk-free store of value, as a unit of account of the world’s business ledgers, and as a medium of exchange for global commerce.
Everyone wants to hold the U.S. Dollar, from global merchants to sovereign nations.
There’s a reason why U.S.-based companies are the largest in the world: the world’s capital comes into the United States as a safe haven, and companies like institutional investment offices and venture capital firms can deploy that capital — companies in the United States.
Everyone wants to hold U.S. debt, considered by the world to be “risk-free”.
The yield on a 10-year U.S. Treasury bond is currently 1.631% at the time of writing.
Think about that. If I’m the U.S., I can borrow $100 from you, and I promise to pay $1.63 back to you every year for the next TEN years.
And with the Fed’s public desire to rise inflation rate at or above 2%, they’re essentially “inflating away the debt” — getting money now for free and paying less in the future.
The E.U. buys U.S. debt as a risk-free interest rate and, in return, raises debt at a higher interest rate from its citizens. A virtuous cycle of accumulating and issuing more debt.
Change is Coming
Will dollar hegemony fall with the rise of China’s economy?
While China is still incredibly long the USD (being the second largest foreign holder of US debt, owning over $1 trillion in USD), China is still actively seeking to disintermediate the U.S. from global commerce.
First, through their Belt and Road Initiative with African nations taking on RMB-denominated debt, and second, by taking over as the manufacturing center of the world and requiring commerce be done in RMB.
When I asked my dad — who has a 30+ year career in banking — whether the RMB will replace the USD as the global reserve currency, he said no because “it’s China against the world” — the world’s money into U.S. as a safe-haven asset vs. China’s individual efforts to champion the RMB.
The world is rallied behind the dollar, raises local fiat-denominated debt in accordance to the dollar, and sometimes even pegs their currency to the dollar.
Disintermediation will be tough.
If not the RMB, will the U.S. Dollar ever be challenged?
Going back on my dad’s statement, I asked myself, “what is more global than the dollar?”
What is an international movement that surpasses the power of government regimes and unites people beyond the borders of their nation-states?
Of course, it’s the internet.
And what is the internet-native version of money?
Chew on this for a sec.
As a foreign nation thinking about sound monetary policy, rather than being subject to the control of the Federal Reserve who has the power to arbitrary manipulate monetary supply and has a legal duty to protect the U.S. economy (not the global economy), why not be subject to a currency that no one can control?
Imagine a world where people can choose their store of value — and not be subject to the pitfalls of central banking.
Imagine the lives that could have been better off in countries suffering from a failure of its central bank: Venezuela, Turkey, Lebanon.
Even companies are waking up to the idea of holding BTC in their treasuries — purely as a hedge from inflation from USD or any other fiat currency.
And this isn’t just a post blindly advocating for holding Bitcoin.
The people of the world can drastically benefit from holding other nation’s currencies as a hedge or a medium of exchange.
A contractor in Eritrea suffers from far fewer job opportunities in a global, internet-enabled job market (for say, digital work like design or software engineering) if they asked to be paid in Eritrean Nafka.
However, if they could be paid in a permissionless coin that is denominated in another country’s fiat, such as USDC or TerraKRW, there would be many more employers interested.
Note: it’s important that it’s permissionless stablecoins, rather than “real” fiat because there are higher cost off-ramps for “real fiat” via a bank — vs. a stablecoin that can be exchanged to local fiat via an exchange
The same goes for a merchant in Mongolia — they’ll get far more interest and liquidity from a “major currency”.
As a result, citizens of other smaller countries can participate in an increasingly connected global economy. And they’re able to hedge against their countries’ monetary policy with a risk-adjusted portfolio of another nations.
A win for all the little guys — just not for the Federal Reserve :)
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