What would replace it? I guess the options are Yuan, Gold, Oil or maybe BRICS in the future, none of which are safe, stable, and liquid.
Turns out that being good at SQL does not make one good at the subtle social art / science of power and governance. If anything, the correlation is inverse. This shouldn't be surprising.
>https://en.wikipedia.org/wiki/BRICS
So what is the problem mentioning a future BRICS possibility while discussing de-dollarization. Not a challenge want to understand.
Africa will likely primarily use the yuan, Europe the euro, and a smattering of states will use the dollar.
This sort of fracturing is bad because the cost of goods will be pretty much unpredictable. Trade routes may once again determine how something is priced. It also means goods that are cheap today may become massively expensive tomorrow.
There might be some regional stability, but things like electronics that use a global market are going to be heavily disrupted.
In fact - the entire argument seems to more accurately hinge the conditional left off the main saying, so the full description is:
"Bad money drives out good if they exchange for the same price."
But that requires a legal structure that enforces the disparity, and the summary of the whole thing basically boils down to:
---
If given the choice of what money to accept, people will accept the money they believe to be of highest long-term value and not accept what they believe to be of low long-term value. If not given the choice and required to accept all money, good and bad, they will tend to keep the money of greater perceived value in their own possession and pass the bad money to others.
---
But if anything - this is exactly an argument for the value of soft power to the US, because we can't enforce how other nations transact, except through soft power.
[0] https://www.ecb.europa.eu/press/financial-stability-publicat...
No one cares that everyone wants to spend their dollars. They care whether the seller takes them, and is forced to take them at the same value as more cherished coin.
There is no functional mechanism to enforce this internationally - we already see the value of the dollar declining.
It's entrenched, so I expect the withdrawal to be relatively slow for the same reason you don't rip the bandaid off - you avoid a lot of pain. But there is nothing stopping the bandaid from coming off.
Hence "In practice".
To the meat of your argument: sure, there's no mechanism to coerce it internationally, but it's self-perpetuating. Everybody could quit using dollars tomorrow. But they won't.
> we already see the value of the dollar declining.
This is not clearly the case. Its value relative to other currencies (as of this month), while subject to cyclical fluctuations, is on par for the post-Covid cycles and higher than pre-2020 levels [0].
Apparently the guy that invented the concept disagrees: https://x.com/nntaleb/status/1914633020671246352
When the Dutch for example did try to go off a metallic standard it was essentially a last ditch effort as they were completely broke. The US on the other hand had the advantage of still controlling global trade/it's military, liquid markets and the petrodollar system. The dollar's floating exchange rate also served as a release valve, allowing devaluation to occur gradually over the decade that followed versus all at once.
Re a dollar collapse I see a gradual shift towards a more multipolar world with no clear singular reserve currency and no currency which eclipses the dollar as more likely than a collapse or eclipse. For example where the Americas still primarily transact in dollars, the Yuan becomes an increasing percentage of belt and road trade, and the Euro in it's sphere.
[1]https://cepr.org/voxeu/columns/rise-and-fall-paper-money-yua...
The dollar isn't indestructible. If not the Euro, what?
- easy to verify/impossible to forge (as opposed to gold and paper currency)
- fixed supply (as opposed to paper currency, oil, and even gold)
- easy to transfer from one party to another (as opposed to gold, oil, and physical cash)
At that point just hoard resources. Holding a bunch of Bitcoin in a crisis is useless for a country if no other country will buy them off you in exchange for tradeable hard currency.
There is a great reason: a state-backed currency should always be accepted by that state. If the world is in crisis, you may wind up stuck with your Bitcoins.
I agree that you need the currency to be accepted by the state for good local trade support. But that was not the point.
Yes. If you're a random country, you can use your dollars to buy shit from America. Countries hold reserves for basically two direct reasons: to intervene in FX markes and protect their imports. The latter is the main one. At the end of the day, your ideal reserve composition matches your import portfolio because you want currency you can send to the people who are selling you shit.
Yes, none of that makes an iota of sense. If a military wants to take inflation into its own hands, it has far-better options. From hoarding to, you know, taking shit.
But you can easily trade dollars for stuff Americans will sell you. That's the advantage of a national backer. In a crisis, they'll welcome the influx of capital in exchange for goods and services. Precisely what you need it you want to spend it.
This is why sanctions fuck up reserve calculations. If, in a crisis, America will sanction you, you might as well have held gold or Bitcoin.
"Let me just set up my P2P connection to the Bitcoin network and pay mining fees and hope a miner validates the block"
vs
"Here's a bar of gold mate"
Sure, real easy
Yeah, super convenient. Well worth it. I'll just go with gold bars on me to the market to buy lettuce.
By it sure does sound simpler to type some numbers that to cut up pieces of metal.
And there isn't any "hope" involved in bitcoin transactions. Connecting to the peer to peer network is super simple (way, way easier than creating a brokerage or bank account, and no ID or approval is required). Miners will pick up your transaction (and yes fees will help speed that up, as with any financial transaction) and it will be included in a block. Bitcoin has been doing this non-stop, flawlessly since 2009.
There are fixes to that problem, of course, but it's not bitcoin itself that's the solution.
Split the user base along geopolitical axes and see how long the consensus algorithm lasts.
Gold bars don’t have this problem.
When they called in the physical gold, people could squirrel away their $10 and $20 coins in wallsafes and shoeboxes to trade with trusted partners later. Declaring the coins illegal didn't cause them to disappear from people's hands directly.
Crypto doesn't have that physical anchor. If a major world government declared it illegal tomorrow, how would you, as a resident of that country, access the value in your favourite blockchain wallet?
Law enforcement could monitor the remnants of the network and trying to trigger transactions is obvious probable cause. That assumes the remnants still function-- they aren't being blocked by DPI/filtering, or just the functional destabilization caused by a large number of participants being unplugged from the network.
At best, you'd have to go off-ledger and trade talismans (handing over a document with the private keys for an existing wallet like a bearer instrument and hoping they didn't run off multiple copies, or just trying to keep records of transactions and balances elsewhere and hoping to resynch eventually)
This is also why the paper dollar is so important to its reserve-currency status. An enterprising bank in the developing world might say "we offer USD-denominated accounts, all digital, it's 20xx" for customers who don't trust the local currency, but those are a lot easier for the local government to deactivate than a coffee can full of greenbacks buried in their backyard.