Money in a Time of Madness: How Geopolitical Shocks, Cryptocurrency, and Power Intersect
The world’s financial systems are being put to the test by the horsemen of plague, destitution, war, and other geopolitical phenomena that are starting to rattle our understanding of the ‘old’ world order. This order arose from the ashes of WW2 where an ascending US, with its allies, enshrined its place as the only world superpower and, in 1971, with Bretton Woods, established USD as the world’s reserve currency, with global and perpetual ramifications on the world’s financial system.
Cryptocurrency, with its cross-border possibilities, decentralised consensus mechanisms, and startling efficiency — delicately interlaces with that ‘old’ order in a currently uneasy fashion. Those in power recognise what blockchain can do for worldwide economies, but fear how removing fiat money from the equation of power could jeopardise the world’s structures as they are today.
Brother, Can You Spare a Dime? Instant Financial Systems
In the post-WW2 world order, a move from gold-backed currency to the US Dollar backed by the faith and credit in the United States and the Federal Reserve created the financial system we see today. In third world countries, most places accept dollars. In crypto terms, it’s the currency with every liquidity pool imaginable, in every place in the world.
However, getting a hold of dollars at a fair market rate can be difficult for populations where it’s not permitted, like Venezuela, or in countries where the poorly banked have to access it in a cash-based economy. These black market dollars are expensive and difficult to transact with. Yet in countries whose economies are suffering and their currency losing value, it’s the only safe way to hold onto the value they have accrued through a lifetime of work.
A lack of payment systems and banking in distraught areas of the world can highlight a strong future utility for crypto. The fact that Web3 and the dApps within it are not centralised has an advantage that needs more attention. Web3 systems are at full power for all users, because the network and blockchain has already been established — anyone with an internet enabled device can access the full range of services available.
The Expense of Conducting Business in Unbanked Economies
Compare and contrast this with a traditional banking system, which needs branches, integration with legislation, and staff, plus an accompanying orchestra of the SWIFT and IBAN systems. All of these systems are expensive and fee-ridden, and not due to conspiratorial malfeasance by the banks. In other words, the system is severely antiquated. FinTech currently is a band-aid, giving the appearance something is happening quickly, but the underlying money movement remains archaic with long settlement times of money transfers.
Blockchain is poised to onboard significant liquidity as the user experience of Web3 matches and exceeds that of Web2. Institutions realise this and believe that — ultimately — fair markets and access to capital worldwide is a good thing for the world.
The shift simply needs the right platform.
How Acts of God and War Can Break Economic Systems
Web3 financial systems remain inviolable — as long as the internet can be maintained — under the pressure of geopolitical squalls, instability, or other acts of force majeure. A tsunami might knock out all access to capital on an island which has a cash based economy. More pertinently, in light of recent events, it may allow financial stability for the wider population in times of war.
To those more sceptical of cryptocurrency, this may have the deleterious effect of enabling rogue entities — be that states, individuals, or criminal cartels — to maintain access to that money when it might otherwise be seized. Yes, it would allow individuals otherwise sanctioned to not suffer the effects. The Russian state, once prominently anti-crypto, is now exploring the possibility of using it to bypass western sanctions.
Yet it works the other way too. Recently, for example, the Ukrainian government put out a slew of calls for donations for its war effort. The most prominent received being crypto donations, with over $60 million in Bitcoin and other cryptos flooding in.
The general population in Russia who had access to Web3 economies would not see their savings cut in half due to the actions of their state. The rouble has crashed, Bitcoin has surpassed it. And in times of caprice, the all too familiar ‘run on banks’ as savers scramble to withdraw US Dollars — with places running out and rates running higher and higher, finding their net worth plummeting through no fault of their own.
Crypto and Power
Why crypto? Because sending money through the blockchain, cross-border, cross-system, and into the hands of people you otherwise have no connection with — and in a time of calamity — is easy, cheap and direct. Not to mention, the self-sovereignty provided over your finances. Crypto-advocates would also point to the traceable nature of the blockchain, that would be able to track a sanctioned individual’s wealth as it moved. This is contrary to the false notion that much of crypto is hard to track.
The primacy of the US dollar has been reasserted with recent events. The suspension of SWIFT has led to an inability by the Russian central bank to use its US dollar reserves (of over $640 billion) to restore its embattled economy.
No Easy Answers
These issues are complex. Crypto is not a panacea to the world’s problems. Yet, as the world continues to destabilise, value assignation and value transfer become more crucial than ever. The industry’s user experience must mature to provide an onramp to mainstream users.
Crypto, if properly decentralised, has the ability to transcend political problems in this case, and thus divorce value more appropriately from geopolitical power. As Eric Michaud states, ‘We’re at a watershed moment in global history where central banks of nation-states are no longer in direct control of the financial instruments once used to impose global regulations.’
The US Dollar and other fiat currencies aren’t going anywhere just yet. Through stablecoins, the US dollar has seen significant adoption rates globally by dominating the settlement currency across a myriad of Web3 and DeFi products. Using the blockchain to open global access to dollars and other denominated nation state currencies and tokenizing them on chain will create instant, robust banking systems that work with, instead of against the current financial system.
This is part of what we’ve set out to do at Onomy Protocol. By building an economy of fiat-pegged, decentralised, crypto-collateralized and non-custodial stablecoins pegged to the world’s major currencies, we are creating an extra layer to the financial system today, allowing virtually anyone with internet access to store, manage, and earn yield via their on-chain fiat holdings, effectively removing traditional banking from the equation, lowering transfer costs, and opening a whole new world of opportunities for those who fancy the idea of crypto, yet face the bottleneck of volatility.
We believe this offers a chance for stability and hope in a time of madness.