The Currency Wars Are Underway

A currency war is a means of gaining strategic, domestic advantage by use of a nation’s money. A weak national currency is typically advantageous because it means demand for exports increase and strengthen an economy (at least nominally). A stronger currency makes it harder for foreigners to afford products from a country and so are typically accepted for the sake of increased foreign investment (i.e., it is beneficial to earn in a stronger currency) or to lower import costs.

However, a stronger currency tends to make large piles of debt harder to pay down because debts must be paid down with a higher valued form of money. That is a big problem when you are sitting at $36 trillion in national debt and and not enough physical or digital dollars in the world to pay down the whole of global debt.

In this latest iteration of a global currency war, the gloves have come off. When the US sanctioned Russia at the start of the war in Ukraine, they effectively weaponized the dollar. This woke up much of the world to the risks of dollar dependency as a global reserve currency and the inclination of the United States to use its position of privilege under somewhat arbitrary circumstances.

Since then, many countries have been stockpiling gold and seeking ways to opt out of the US dollar system and evade its use in trade. China, Russia, and the rest of the BRICS countries have floated the idea of a new global reserve money (not likely another fiat currency, given the inherent untrustworthiness of participating nations), have begun trade historical in dollar denominations with other national currencies, and have increased gold reserves.

The US dollar has a profoundly strong network effect. It could, perhaps, limp along for quite a while. But with debt piling up, deficits running hot, a new trade war underway, and no sign of anything resembling fiscal responsibility on the horizon, the likelihood of its demise in the short or medium term seems ever increasing.

The more you dive into the problems and the potential for currency manipulation, the more obvious it becomes that Bitcoin fixes this. A global, decentralized monetary base that nobody can manipulate would remove the need for exchange rate friction, trust, or fear of fiat weaponization.

While gold accumulations by central banks might lead you to believe that we could be headed back toward a pre-1971-like gold standard, Bitcoin offers any brave, powerful nation a trump card. Who would choose gold, with its tendency toward centralization, demand-induced supply shocks, costly transportation and security requirements, and inability to be easily audited when they could opt for a digital gold (Bitcoin) that also can serve reliably as a digital, 24/7/365 exchangeable money?

Governments themselves will avoid Bitcoin as a replacement currency for as long as they can, regardless of talk of strategic reserves. But as more individuals run the numbers and open their eyes to the failures of fiat, the pressure to move everything to Bitcoin will become unavoidable.

Currency wars are nothing new, but the last 50 years they’ve been fought with highly manipulatable variables, such as interest rates, exchange rates, and others.

Bitcoin offers no such optionality for self-serving governments and therefore can (and I believe, will) be what individuals, and eventually corporations, funds, and nation states, demand.

The question is not whether the Titanic is sinking, but rather how long it will take to completely capsize and who prudently chose to board the lifeboats before it did.