The US dollar is unstoppable.
I know this goes contrary to the narrative many espouse. We are seeing the collapse of fiat according to them. At the same time, many of these same people mention the uprising of the BRICS and their currency.
Do you remember a couple years ago when many were promoting the idea of a gold backed currency from the BRICS? Here we are and still no currency. Of course, each BRICS summit, the finance minister from India steps up and states how their (India) goal is to make the rupee an internetional currency.
If you do a search, you can find this same statements back in 2010; 15 years later and still no international currency.
Part of the misconception comes from not understanding where the strength of the USD resides now.
This is what we will dig into it in this article.
The US dollar is not going away. In fact, it will only gain strength going forward.
To comprehend the depth of this statement, it is best to uncover what we mean by the US dollar. Many simply look at it as a currency. This is not the case. In fact, to fully grasp its power, we have to look at the transformation in the monetary system.
The monetary system has nothing to do with money. This is no longer the basis. Instead, we are dealing with the digital realm. The largest percentage of the money supply is not in bank notes. The days of physical currency are gone.
Instead, the monetary system is akin to a computer network. It is ledger based, connected via servers throughout the world. The pace of monetary transactions is not based upon monetary units. Today, it is bandwidth that matters.
What this means is that a company like Visa is not really involved in finance. The power of Visa comes from the fact it has one of the most expansive, global computer systems in the world.
The same is true for the US dollar.
When we look at the money supply, this is not driven by the Fed. Under fractional reserve banking, the central bank is only responsible for the banknotes. It is the commercial banks that expand the money supply through lending.
Of course, physical currency is not used in this process. It is all done digitally. The idea of a digital dollar is basically redundant since that is where most dollars reside.
It is also why crypto is as legitimate as anything else. Here we have a ledger based monetary system. The only difference is who runs it. Ethereum, Bitcoin or whatever other network we are talking about differs in that the banking system isn't in control.
Since we are dealing with computer networks, the key is network effects. Here is where the destruction becomes almost impossible.
The US dollar has evolved from a currency to a unit of measure.
In the crypto world, the idea of currency is misplaced on most coins or tokens. These are value capture assets, not really suited as a medium of exchange. Since they promote the idea of HODL, this constricts distribution. At the same time, price volatility is ideal for traders but poor for business.
For this reason, stablecoins are the medium of exchange mechanism. The overwhelming majority of these are US dollar denomination, yet operate outside the money supply. Stablecoins such as USDC or USDT are not created by the banking system. Thus, they expand the money supply in another way.
The US dollars use to create as stablecoins remain in circulation, creating another vehicle for which to conduct financial and commercial activity.
We see the process taken to another level when we move outside the existing financial system, by entering the algorithmic stablecoin world. Most stablecoins are asset backed, meaning each token is secured by cash or a Treasury (T-BIll). Algorithmic stablecoins use some other asset for redemption, usually in $1 increments.
This produces another layer of US dollar activity. It is completely outside the traditional financial system, yet capable of facilitating economic activity.
Both these factors will enhance the overwhelming network effects the US dollar already commands. Consider the fact that the economic productivity tied to the US dollar dwarfs every other currency out there. Since most are ledger based these days, we are simply comparing the activity tied to computer systems.
It is no different than comparing Mastercard, Visa, and PayPal. Under this scenario, it is easy to determine who is the king there.
The upcoming explosion of the crypto industry will likely only feed into this more. Over time, it is probably that the amount of "dollars" creating by the banking system will decline as a percentage of the whole. The replacement will come from tokenized dollars, either asset backed or algorithmic.
We are presently sitting on about $200 billion in stablecoins. This number will grow into the the tens of trillions over the next decade.
The currency will fade away...the measurement will stay the same.
