yup, this is something different ...
Interactive Brokers will offer crypto trading by the end of the summer
- Thread starter Daal
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yup, this is something different ...
OK, so let's take this idea - I think the US has a lot more than 10-15 years but that is not here or there. Assume China's Yuan is a new reserve (very doubtful) or Euro(same)? They will not allow BTC just the same. It is against ANY Central bank to have BTC as a reserve currency.
Simply, at this stage no other nation has the same clout as the US dollar and BTC has problems from all of the central banks, not just the Fed!
BTC can't be the new reserve currency for the same reason as Gold: experience has shown that hard money systems are inflexible, unstable and crisis-prone.
The motor of the world economy is the US printing dollars and sending them abroad in exchange for a gradually but steadily rising volume of imports - which means the US must agree to be the world's biggest debtor while other countries must agree to hold USD at prevailing interest rates. There might be some modest degree of diversification in trade settlement and FX reserve balances (as has been ongoing for years), but no sign that the USD centric system is under real threat - nor is there a plausible alternative at the moment.
Both of the these posts make an assumption, one which may be erroneous. IE, the world economy cannot or will not function without a reserve currency. Is that true?
Can there be multiples? The main idea of a reserve currency is a place for nation-states to store external value AND to function as a global medium of exchange.
The USD still performs function 2 very well and there is no reason to doubt that will continue indefinitely.
It is the store of value prop that is in question. Other reserve currencies have steadily declined, then been gradually replaced. Importantly, it is a slow, steady shift, not an overnight process.
However, there is a major downside to having the reserve currency - the nation needs to fill 2 contradictory purposes: maintain the value of the money somewhat, at least, and fulfill ongoing, essentially insatiable demand. It requires a tricky balance, but as Minsky's instability hypothesis shows, this balance cannot be maintained indefinitely. As money supply and printing grow, speculative actors gain greater shares of the economic activity. Ponzi's, or definitively overleveraged players, become the majority share of the economy. At this point, a significant decline causes massive instability as poorly funded actors go bust in a domino effect.
For the reserve currency, the answer is to devalue the currency. Governments know this, and know that this is an inevitability for the USD. Thus they will look for other alternatives to store value.
Instead of a reserve currency, they will look to
farmland, mineral deposits, commodities, gold, energy stores and other hard assets.
Ray Dalio's latest book: The Changing World Order: Why Nations Succeed or Fail, is essential reading. Very well researched and presented without moral judgments, it is eye-opening as to where we are in the macro-cycle of economics. It's a highly unstable place and currencies are not the safest place to be.