The Coming Global Currency Reset:
What Will It Look Like?
Assumptions
It is clear that (1) the current world fiat standard is unsustainable, and (2) the days of US dollar hegemony - the "exorbitant privilege" of creating "money" out of thin air - are over. All of recorded history had money more or less connected to a physical commodity until 1971, when the world tried a new experiment - a debt-based fiat currency standard. It led to the expected and widely predicted result of rulers overspending, high sovereign debt, monetary debasement, and both lost productivity and a lower standard of living due to the inability of the government-perverted controlled market to accurately gauge prices.
All fiat currencies die. Some currencies die harder than others. The US dollar, fiat since 1971, is now on its death legs. Other States, such as China, India, and Russia, and some consortiums of States such as the EU and BRICS, would certainly like to be the next hegemon if there is one, but at the same time are wary that being the world reserve currency has some downsides now being observed for the US - that keeping a monetary hegemony may require continuous and mounting debt.
Besides the currencies of competing States, there are also two breeds of cryptocurrencies in the Currency Reset horse race. So lets see who the competitors are, break down the chances of each winning, that is, getting the largest market share after the reset.
We have six breeds of horses in this race:
- Debt-based fiat currencies
Example: The 50 year old US dollar nag, on its last legs. - Token-based fiat currencies (CBDCs)
Examples: China's digital yuan is in the lead, but the US, EU, WMF, and BRICS central bank digital currencies (CBDCs) are all in the running. These are to replace the dying debt-based currencies. - Unbacked decentralized currencies
Examples: Bitcoin is in the lead, but Etherium, Ripple, and Stellar are also in the running. - Backed State centralized currencies
This breed is thought to be almost extinct. In theory, a State could back its CBDC, but this is unlikely to occur due to the perverse incentives of rulers and the State's proclivity for plunder. Long shot: A gold-backed yuan. - Backed private centralized currencies
Examples: Suppose Apple came out with digital iSilver, redeemable at its partner Walmart for real "Silver Sam" rounds. Such a partnership would solve the chicken and egg problem for a new currency. - Backed decentralized currencies
Examples: None, although the technology is ready and there are plenty of startups. There are some backed cryptocurrencies with centralized vaults, but none with decentralized "line of trust" vaulting and redemption.
Before giving my predictions on win, place, and show, I will give you my mains assumptions I use to evaluate a currency's prospects.
- The current US fiat dollar will die, probably by hyperinflation but maybe by default.
- The failed experiment in fiat currency is coming to an end. The next winner will not be a fiat currency. The world is going back to a commodity standard of some sort. However, CBDCs will put up a good fight for market share early on, having the advantage of habituation.
- In the long run, people will prefer backed to unbacked cryptocurrency, since the former is a store of value, and thus dominates the latter.
Predictions
In the money race - actual monetary commodities as opposed to currencies - the current champions gold and silver will win out, with kilowatt hours becoming important in the coming decades.
As for the currency race, this is how I see it:
First Place: Some as yet unknown private backed cryptocurrency will become number one. Whether it will be put out by Apple or Facebook or Alibaba or some other companies, who knows? Ideally, a number of firms will be major players, and the phenomena of monetary hegemony will become a thing of the past.
Second Place: Commodity-backed decentralized cryptocurrencies, such as colored Bitcoin and Etherium smart contract tokens. Private cryptocurrencies will either have to get backed or go broke. It's as simple as that. Once fiat money goes away, much of the value of unbacked cryptos like Bitcoin evaporate. As much as they are better than fiat, they are worse than backed crypto.
Third Place: Commodity backed CBDCs, with the leading candidate the Chinese yuan. Will China's rulers be smart enough to back their digital yuan with gold? It is unlikely due to the incentives of the ruling caste, but nevertheless a possibility.
