World Reserve Currency: USD, Yuan, or Bitcoin
We are entering a cyclical period where empires rise and fall; in this case, the US dollar stands as the reserve currency for 50+ years. But its reign may come to an end.
I am looking at the macro environment of chess pieces being played out. Russia is looking to play a cold war of an invasion and has stockpiled goods and raw materials for the years to come. Brentwoods II is dead, Russia has shot the dollar in the back of the head, NATO and the US responded in freezing US dollar-denominated assets of Russia. It is also not the first time the US has seized US dollar-denominated assets of other nations like Afghanistan and Venezuela. Russia has shown that “Trust” in the US dollar is breaking down and has been deteriorating for some time. You can say that the backing of the dollar comes from trusting the US government in protecting US dollar-denominated assets of other nations through a bank or by an army. But time has shown that you can manage and dictate the actions and policies other governments must take by simply controlling the money. That is the cruel reality of the US dollar.
Now Russia is responding with their goods in their currency, weakening the EURO/DOLLAR to strengthen their Ruble money.
In these times of currency wars, people flee to the hardest assets or commodities. That is why you see the price of Gold, Nickle, Wood, Wheat, Fertilizer, Oil, etc. Go up in value. It is what the market is deeming to be of value in the future because there could come a recession and a period of starvation. It would primarily affect second and third-world countries, but the magnitude of the effects of inflation will persist through all nations.
The Chinese “Yuan” is also positioned to become the world Reserve currency due to the current arrangement with Saudi Arabia in buying Oil using the Yuan, strengthening the Chinese currency as trade.
Although China could make a move to have their currency be the Reserve Currency of the World, the communist state of China may not allow it. As a communist country that surveillances its citizens and the transactions made in its currency, China would have to bend its ideals to suit itself as the World Reserve Currency. To become more “liberal.”
Another store of value that is more frequently making headlines is Bitcoin. A natively digital currency that is apolitical has no government or authoritative body. The flaws that come with nations that issue their own money governed by its government where the human nature of trust can be broken or misplaced.
Nation-states are looking to adopt Bitcoin as Legal Tender, especially in El Salvador. Russia came out today to accept Bitcoin as payment. This is the “Game Theory” that most talk about regarding currency wars. It is happening before our eyes, and times can come to accelerate this sort of adoption.
The US may see Bitcoin as a threat. Recently, the US government has come out with a Bill is “police” and “servile” the government of El Salvador over the use of Bitcoin.
Some people and government fear the unknown; others fear losing the power of what the money printer has brought them, the Cantillon effect. You may see the world shift into the currencies of the US dollar and the Chinese Yuan. The markets will battle it out to see who comes out on top. I see another solution that will benefit all, where no one authoritative entity dictates monetary policy or can freeze your assets. It is the most asymmetric bet of our life that can change for the financial better. Only roughly 4% of the world owns some Bitcoin. Meaning approximately 96% determine Bitcoin will go to 0. May the odds be ever in your favor h/t The Hunger Games.
