How a Gold-Backed Cryptocurrency Might Usurp the US Dollar
US Dollar - Reserve Currency Status
The US Dollar, in its different forms, has been the world’s reserve currency for the best part of a hundred years now, but is its time coming to an end? Could a new gold-backed cryptocurrency be about to replace its hegemony?
After Britain spent more money than it could afford fighting for and against its neighbours across the English channel in World War I, America stood back, waited patiently and moved in to eventually become the standard bearer for the world economy. Ever since, America has dominated world politics and trade.
Britain and the pound weren’t the first dominant nation and currency to relinquish its power, however. Many fell before them, and the new king, America, will be the next to relinquish its crown. In fact, I believe the displacement is already underway. These things take time. Britain fought for decades and didn’t officially lose its reserve currency crown until after World War II.
The Forceful Arm of the American Government
America doesn’t help itself in remaining king of the currencies, of course. Most world trade is done in dollars using the SWIFT System, and America can and has dictated which governments can use it. SWIFT is not owned by America, but because of their reserve currency status they have so much clout, they dictate proceedings. So, if a country isn’t doing as America pleases it is literally switched off from the SWIFT payment system until it does as it’s told.
Any country not playing ball is penalised with sanctions by the US government, and the effect is usually catastrophic for governments and their economies. Of course, this only creates resentment. Two of America’s biggest foes, China and Russia have been victims of sanctions and have had their economies strangled. Some might say rightly, but that is not important for this argument. The fact is America has dictated world trade with its reserve currency status and at times abused its power.
Venezuela and Iran have also been victims of American sanctions. Venezuela has the world’s biggest supply of oil, and Iran also has copious amounts of it to sell, but because oil is traded in US dollars, neither nation could sell it on the open market. This obviously doesn’t sit well, and Russia has been in talks with both nations about bypassing the SWIFT system. On top of that, Russia has dumped the vast majority of its US Treasury holdings worth an estimated $80 billion, replacing it with gold.
China, America’s biggest debt owner has sold a staggering $100 billion of its US Treasury holdings. China still owns over $1 trillion of US debt, however, but they can’t simply sell all of that, as it would have an adverse effect on the world. They have to do it gradually.
Why are they doing this? Because they want to displace the US dollar and weaken America’s grip on world power.
A Gold-Backed CryptoCurrency
It’s no secret that China and Russia are in talks about a bilateral trade agreement, which includes a new cross-border system for direct payments using only the Yuan and the Rouble. The same agreement will allow each nation’s main credit card to be used cross border. An agreement between these two countries, no matter how huge their economies, is limited, however.
If they are to integrate other nations like Iran, Venezuela and whoever else into a new system, they have to come up with something frictionless and with absolute trust. A payments system that no one government can control. Not China, not Russia and not the US.
Blockchain, the technology that underpins Bitcoin and cryptocurrencies will be the infrastructure of the new payment’s system. A public blockchain, like Bitcoin, is decentralised, not controlled by any central entity and is the most robust and secure database ever created. Governments don’t and can’t control it and that makes it, or something similar, an ideal solution to circumvent the SWIFT system.
Some governments are creating their own cryptocurrency, but that is basically a digital version of what’s in place now. Venezuela has launched its own crypto: the Petro, and it is claiming that it’s backed by the oil reserves and that oil can only be traded in the crypto. If it wasn’t such a serious matter, that would be as laughable as the central server that “secures” it. Any government in control of a cryptocurrency, can just create more when it pleases, just like they have done for millennia.
A private blockchain like that can never become the reserve currency of the world, because other governments will just produce its own and compete against each other. It has to be decentralised, public, secure and trustless, like Bitcoin. I’m not saying Bitcoin will become the currency used as their payment system, yet.
I believe governments are collaborating to create a gold-backed cryptocurrency, and that is why China and Russia and many other countries have been buying in large amounts. The world came off the gold standard in 1971, and currencies have been backed by the promise of our governments and their armies ever since. I don’t think we will go back to a gold standard, either. I think the new payment system will be a gold-backed cryptocurrency.
Why Not Just Use Gold?
Why won’t they just use gold? Gold is an ideal store of value but it’s useless as an exchange of value. Governments don’t spend a few coins, they spend millions and billions. So, if they want to buy say a billion dollars worth of oil with gold, the cost and logistics of transferring that gold is extremely dangerous, expensive and slow.
Cryptocurrencies are safe, secure and fast, and the data of each token can be programmed to represent anything. I believe gold will be represented on a blockchain that is decentralised among the nations that use it. This will allow any government to purchase something from another government and just send the cryptocurrency as payment.
This might seem like fantasyland, but governments really are fed up of America’s strong-armed control. Its reserve currency status gives it so much influence and benefits that other governments feel they have to do something to even the playing field.
Cryptocurrencies are the way money is going. Gold has always been a store of value and now it can be represented on a decentralised, secure, and immutable ledger, and this will be the next step for governments.
Personally, I think Bitcoin will usurp all Fiat currencies and become the global standard. But that will take decades: 20-50 years, who knows? All I know is governments and central banks will try and sustain their unsustainable system for as long as they can, and for me hyperbitcoinisation will inevitably occur. Before that, however, I think we will see a gold-backed cryptocurrency created to compete with the dollar dominance.
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