The End of US Dollar Hegemony

Towards a World Reserve Crypto Currency?

Source: Thoughtful Cynic

Image: Source: Thoughtful Cynic

Statements that the Western world unjustly controls or consumes the majority of the world’s wealth overlook the production side of the argument. For example, with a population of 317 million -or about 4.5% of the total world population of 7 billion- the United States produce 22% of all world output, the world’s largest market share. It is not entirely unfair to own a large share of wealth if you produce it yourself.

But production requires access to or control of natural resources, minerals, fossil fuels and cheap labor. Being the biggest economy on Earth affords you the best army to secure such resources globally. A nation’s military might and economic wealth are interdependent, connected by a positive feedback loop. Better armies secure more resources. More resources produce more wealth to afford better armies.

The Problem of Storing Wealth Long Term

How do nations, corporations and individual billionaires store their wealth long term with minimal risk? The wealthy look to land, scarce minerals, housing projects, luxury Manhattan apartments, or even war, but ultimately denominate their wealth in currencies that are deemed stable in the long term, namely those of wealth producing nations.

Unsurprisingly the number one world reserve currency is the US Dollar, followed by the Euro as a distant second. There are others too — currencies of nations that produce large shares of global wealth and are expected to continue to do so.

When Hungarian-American billionaire George Soros was interviewed at a 2013 Davos event and asked whether he keeps his savings in Euro, he denied. While Soros likely stores much of his wealth in the US Dollar, others openly attack the Dollar status. Li Chang famously wrote for Xinhua, China’s official news outlet:

It is perhaps a good time for the befuddled world to start considering building a de-Americanized world. (Source)

Being the world’s number one world reserve currency offers an unfair advantage in buying and negotiation power. But to me the blind belief in a single most important world reserve deems even more worrisome. Rather than decentralizing the risk of collapse it is centralized and centered on the assumption that the United States can continue to enforce their military domination of the world.

In this sense, money is a threat of violence disguised as status quo.

From National Currencies to People’s Currencies

Historically, no currency has been the world reserve currency for more than give or take a century and neither will the US Dollar. This is not the end of the USA. Even if the European Union or China surpass the USA in terms of productivity and global market share, the US productivity per capita may nonetheless increase further. But as other entities come to afford bigger armies, it will be the end of US military hegemony.

This brings me to the world of cryptocurrency like Bitcoin, the digital gold for the internet age. Whil we can keep doing business as usual, why should the free people of the world accept centralized government controlled currencies as denominations of their wealth?

Arguably the human race is the most productive entity on Earth. It would be revolutionary to introduce a people’s cryptocurrency, not restricted by national borders or centralized authority. In recent years we have already seen million dollar investments in Bitcoin by among others the Winklevoss twins and Tim Draper’s purchase of over 100,000 coins in 2014.

Surely these investments are entirely speculative and Bitcoin may not be the definite instrument to serve as a world reserve or long term store of value. But the idea of a decentralized and cryptographically secured reserve currency, supported and controlled by democratic peoples, seems a possible next step in the evolution of global finance. It just happens to come with the end of US military hegemony.


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The End of US Dollar Hegemony by Mathijs Koenraadt is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.