Since the whittling away of the power and stability of the gold standard in, depending on where you’re from (1925 in the UK to 1971 if you’re in the USA) and its replacement with a system of tethered trust in the government responsible for the issuance of the currency (Bank of England – UK and the Federal Reserve for the USA). This is know as the fiat system, and has had its ups and downs in the tumultuous century of the 20th/21st.
While it has been stress tested over this stretch of time, is it a monetary system that can last forever? It’s not looking 100 percent whether we should say yes or no, as there’s been more than a fair number of events that have established the economic uncertainties of this interconnected monetary fiat system, understating the fact that when you ‘float’ an economy on a set price, it’s continued stability is certainly not assured.
Of all the fiat currencies out there, the US Dollar is one of the only currencies that serves as a truly globe-trotting one. Even with this international application and prestige, it is certainly not immune to the shocks of inflation and market boom and bust cycles in light of natural (and less so) disasters, political unrest and upheaval, as well as the eroding international trust in the United States in its potential for repaying debts.
These uncertainties across the world underlines the kind of critical need there is for a digital, international storage of value, as exists with the likes of cryptocurrencies – ones that are decentralized and borderless.
This Age of Potential Catastrophe – Economic Uncertainty Worldwide
As Eric Hobsbawn wrote a number of decades ago, the 20th century was the Age of Extremes. It’s only appropriate that we see the economic landscape of 2008 to now as being one of potential catastrophe.
Uncertainty has grown on a global scale and at a surprising speed. Across the world, we’re seeing extreme issues such as increasing inflation, dragging with it the debts of nations both developed and emerging. And considering these are debts dragged from the recessions of 2008/9 and 2000/1, it doesn’t look like it’s improving anytime soon.
More acute demonstrations of this economic catastrophe in slow motion come from the shrinking economy and frantically increasing inflation (currently 8 million percent). Closer to home (for some) Greece has underwent a series of bailouts from the European Central Bank over a decade, much to the chagrin of the big economies of the union. As a result, the underlying finances of those supporting countries and Greece’s infrastructure are certainly not well off.
Credit-ratings are rolling in the fiscal gutter with no-one there to pick them up. The way things are going at the moment, this will only exacerbate social issues such as increasing levels of racial, ethnic and religious tension all the more worse.
One World – Under the Dollar
With the continued international tumult that has come to symbolize the international economic system creates a greater underlying uncertainty in the collective minds of governments across the world, they’ll also grow increasingly attached to the existing monetary order under the US Dollar.
Out of all the financial currencies in the world, the US Dollar is known as one of the single most stable, but that doesn’t make it exempt from being shaken on occasion. It’s this level of trust that countries have in this currency during times of uncertainty that make it such a reliable tool as a default index across a broad range of international markets. T
There’s an internationally held fiat towards the US Dollar and, by association, the US Economy, with 65 countries pegging their own sovereign currencies with the dollar, or even interchange with the dollar in their daily currency.
With increasing levels of market volatility and inflation for sovereign currencies, this has a knock on effect for the price of goods and services, as they climb in conjunction with inflation. Venezuela, as was previously hit upon, has seen more than one third of is population move either towards the US Dollar, the application of cryptocurrencies in order to get US dollars, or just abandoned currencies altogether for the archaic barter system.
With such an increasing number of economies in jeopardy, dragging their people with them, there is an increasingly dire need for a financial system that is far more stable in the face of an age of catastrophe.
The US Dollar’s Value has Become a Political Battleground for Hegemons
Trust is the imperative, and when it comes to the world of monetary policy and value, the US government needs to operate in such a way as to earn and hold that both domestically and internationally, while also looking out for its economic prerogative wherever necessary.
While some of us may not like it, the government has the biggest and most firm hand in the safeguarding and valuation of the US Dollar, as we’ve seen first hand with Trump putting his interests ahead of others, and professing for a foreign policy of neo-isolationism and protectionism (albeit superficially).
The tax cuts which were proposed by the Trump administration back in 2017 had its sights set on cutting levels for the financial movers of society (the middle class), while also increasing incentives for big businesses to in-source their jobs to America. The unfortunate reality is that this has led to a greater increase in the already burdensome sovereign debt of the United States. And as the level of debt behind it increases, its credit rating is placed in uncertainty, and markets over the world will review the US Dollar less positively.
Stablecoins to the Rescue – An Answer to Market Volatility
What we’ve seen over the course of this long 21st century is the United States economy move away from a Laissez Faire, gold standard-backed economy, to one that has sustained some of the worst economic downturns in human history, with the likes of the Wall Street crash in 1929, and the great recession of 2008.
While these have been trials that the world economic system has stood robustly in the face of. We now run up against a new age of protracted trade war, instigated by the US Republican administration under Trump, whose hard-line approach to bringing work and major industries back the United States is out of keeping with the reasons why they left in the first place.
These ongoing conflicts of trade between the United States, China and Europe all illustrate the kind of need that there is for a decentralized system of global value, which would eradicate the need for an international fiat currency that is walking out of the prestigious limelight and into the 19th century world of protectionism. There needs to be a 22nd century solution for this 21st century problem.
Cryptocurrencies have, in many instances, attempted to redress the protracted crisis of instability with its own fiat-backed virtual currencies called ‘stablecoins.’ Since their first debut, major companies like IBM have been developing the technology necessary in order to introduce a stable coin that can prove price-stable over time.
But, it is when we look closely at the entire landscape of stablecoins that there is a consistent theme that they are pegged too a kind of sovereign currency, which means that whenever the dollar takes a dive, so follows the virtual currency, in spite of our better desires.
So what is to be done? A stable store of value needs to be one that is currency agnostic, and not relying on a sovereign currency in order to assure its long-term value. To create such a thing would be to truly revolutionize the international landscape of the economy, and bring stability to an overtly shaky world.
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