I’m back. I’ve waited out enough time to find something to discuss that I don’t think needs to reflect any political arguments that circle around economics and markets these days. I’m going to write about a prediction, which I generally try not to do. Hate being wrong with such regularity, unless it’s just small trading losses on the way to a long ride on a trend.
About a year ago when I was pondering the last blog I published, Trading Is Hard , I told my wife I was thinking about writing a blog about Stagflation. I hesitated and finally decided against it because I hadn’t heard anyone else mention it and was convinced I must be wrong, and that would somehow quickly be demonstrated. Yet here we are. Stagflation on the tip of everyone’s tongue. My wife, to her credit, does remember the conversation and has said so out loud. This time I’m going to go ahead, be bold, and publish my prediction. Can’t think of a better way to ensure that it’s wrong, but here it goes.
Global Digital Currency within 10 years, but one still controlled by international central banks. I wanted to say 5 years, but every time I say 5 years for something, it takes 10. Either way, it’s printed. Bill’s newest prediction. So what’s the big deal? This to me is the most realistic intersection of the crypto nirvana that is so often put forth and the reality that global governments don’t give in easy. Especially when there’s money involved. Especially when what we could call The Currency is involved. The Currency could be every sovereign nation’s own fiat. In a bigger sense though, those could be referred to as the currencies, and the US Dollar would be The Currency.
I don’t want anyone reading this to think I believe this is an original idea. I also know I didn’t define Stagflation. I’m just here to try and help people make sense of what’s going on and what some of the possible outcomes or ramifications may be. This idea has previously been floated, so at least if/when I’m wrong, I know I’ll have company.
The US Dollar is considered the global reserve currency. We think of the value of other currencies in terms of the USD cross rate. Global banking is mostly served using USD. On the same level of importance possibly, energy is priced in dollars. Oil that is, black gold, Texas tea (credit The Beverly Hillbillies theme song). This is important. It shows that globally we want a reference or benchmark. And that reference has grown to be the USD. Is this a forever thing? Definitely not. China is discussing trading oil denominated in Yuan. The public reasoning is facilitating movement of Russian oil. But I’m gonna say, as a Political Science major, that China rarely thinks only about now. Their system of government provides for longer term plans; no one’s running for re-election every couple of years or so. This can easily be seen as a first step towards working to replace, or at least weaken the dollar as a global reserve.
Now let’s look at crypto…I mean beyond the hypocrites who want to change the world right after they buy a Lambo. One of the arguments put forth for Bitcoin is its ability to become a global currency. The ease with which the underserved or completely unbanked can join the world economy via digital assets like bitcoin should not be overlooked or understated. Digital currency does indeed allow for simple direct transfers without the additional touchpoints along the way. But it’s not perfect, and it’s not something that, given the degree of HODL’ers, can easily become the instrument we’re actually using for day to day transactions.
However to ignore the technology and what it can help achieve would be foolish, naïve, and just dumb. We’ve got cars, assembly lines, all the way up to iPhones thanks to technological advances. And the idea of complete decentralization is great in theory, but much like political systems will either fall down at worst, or be unrealistic on a timing basis at best. But diversification can be a stop along the way that makes sense and is kind of a good compromise. A good compromise is what’s at the end of most negotiations. I was taught a negotiation is successful if both sides are happy or both sides are unhappy. As long as it’s even. And that’s what a global reserve digital currency gets us…Some satisfaction mixed with a bunch of feeling ripped off.
A USDC, or US Digital Currency, doesn’t do much in the big picture. There’s not a lot of cash transactions happening these days. We don’t even write paper checks anymore. We use credit cards, Venmo, bank transfers, and auto-pay. So what’s the big step? The next Treasury Secretary doesn’t get their signature on a paper bill to frame? I can live with that. So a USDC, or any other digital fiat tied to a specific sovereign is merely the next simple logical progression along the same old road. Think VHS -> Tivo -> VOD. Think later, rinse, repeat.
But the idea of a global digital currency accomplishes a lot more. It takes control from one nation. It makes it harder for a nation to control a global economy. I’m well aware there are a lot of countries trying to reverse time and become more self-sufficient as they like to claim, but I’m going out on a limb and saying supply chain issues will convince us to open back up rather than close down further. Because if people think inflation is bad now, wait until everything we buy and eat needs to be US sourced. Careful what you ask for, I’d hate for us to get it.
So we’re up to paying for all this stuff from around the globe. I understand that much of the movement toward nationalism around the world is based in national pride, but I’ve said many times as a trader, “When there’s money involved, pride only gets in the way,” (or at least close to it). This is not about pride. This is about maximizing what each country can bring and leveraging the assets found around the globe. And paying for it in a way that both makes transactions simpler and takes the economic power out of a single hand. Not needing to use USD as a basis for trading, business, banking and everything else related will add a layer of efficiency while still letting governments follow and tax the money…you didn’t think I’d be that idealistic did you?
Is this simple to accomplish. Um, fuck no. Is it a logical way forward? I think so. Does it solve all of our political problems? We’re back to the ‘fuck no’ thing. But it brings a level of accessibility to the world economy that’s never existed before. It allows anyone with access to a [Insert Currency Name here] to have the ability to participate. To make and spend money. To be a part of the machine instead of merely depending on it. Won’t solve every problem, and this blog doesn’t begin to address the majority of the hurdles this idea would face, but that doesn’t mean it isn’t worth doing. I’m a big fan of always Moving Forward. This to me, is moving forward. And I know I’ll probably be wrong, but at least this time if I actually am right, I got proof.