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For some economists, the future of the US dollar may already be sealed. One reads more and more often about the de-dollarization and the rise of the BRICS countries, which are forming an alliance against the West and especially the USA. The popular ones analyses by hedge fund manager Ray Dalio are also contributing to the fact that more and more people see China as a new world power.
Assuming China’s rise and the supposed American decline, one might quickly come to the conclusion that the Chinese renminbi or a currency basket of the BRICS countries could replace the US dollar in the future.
Without trust, no reserve currency
Leaving aside the option of compulsory establishment – which would be the case if a nation can use military dominance to force other countries to use its currency – trust is needed. At the moment, however, there is absolutely no way of predicting that the BRICS countries will be able to build up sufficient global trust in their currencies over the next few decades.
Neither the USA nor the euro zone will build up large currency reserves in renminbi or a currency basket of the BRICS countries and thereby make themselves vulnerable and open to blackmail. After all, what happened to Russia’s US dollar reserves could just as easily happen to American renminbi reserves. By freezing Russian US dollar reserves, the US has not only harmed the US dollar, but all fiat currencies.
How the US dollar is hurting all fiat currencies
Completely detached from inflation debates, the fiat currency construct has recently suffered massive cracks. All states, especially Russia, in this world have become painfully aware of a repressed weakness of state money in the context of Realpolitik. The West played an ace that has now burned, at least from a Western perspective. The gold purchases by central banks at record levels underscore the loss of confidence.
Against this background, it cannot be assumed that there will be a national currency that can take the place of the US dollar in the next ten to twenty years. Rather, a regional fragmentation is to be expected, as we can already observe. Instead of being settled in US dollars by default, different fiat currencies are agreed upon depending on the region.
What about in 20 years?
Another and even more daring thesis is that in the future it will no longer be a question of which nation provides the reserve currency. Assuming that there is not one all-powerful hegemon, technological and political developments suggest that the nature of our money will change fundamentally. This does not mean per se that there will be no more state money in the future, but only that our future fiat money will play a different role.
One can arrive at this view if one follows the thesis of the American political scientist Ian Bremmer that in the future there will no longer be a state-dominated world order, but one that is based on technology. So he explains in his TEDtalk that more than ever control of the population is in the hands of technology companies. It is primarily big tech companies such as Google, Meta or Amazon that can exercise political control over society through their data and network infrastructure.
Technology instead of state: What does that mean for our money?
If you go one step further and assume that decentralized networks are superior to central forms of organization, you quickly end up with a world order that sees itself as a decentralized network. The advance of open source, especially in the field of AI, would simply transcend national borders. Digital globalization would limit state control. The new network level would be like a second layer over the existing infrastructure and state institutions.
However, state money would only make limited sense for that very economy. Why state money when the infrastructure can no longer be controlled by the state? Be it through central banks, SWIFT, supervisory authorities or institutions such as the World Bank or BIS.
Ether instead of Euro: payment flows in a DAO
An example of this would be cash flows circulating through DAOs that do not have a regional entity that can be held liable in a particular jurisdiction. Assuming that sanctions are not imposed at the regional individual level, the state cannot control this to its advantage, as it has done with previous means.
As a result, a non-governmental, digital value-added level would establish itself alongside the state-controlled value-added areas. Both worlds could certainly exist parallel to each other, even if the exercise of control and enforcement of state laws can only take place in the “old” world.
Coexistence of fiat currencies and Bitcoin
In practice, this would mean that in Europe we would still pay our taxes in euros, but at the same time earn an income in Bitcoin or Ether through freelance work in a DAO, for example. Qua legal disclosure obligations, the state could still gain access to our digital assets, in case of doubt by force. However, he could no longer effectively influence the decentralized networks themselves.
Non-government money, i.e. primarily Bitcoin, would therefore be more suitable in terms of design than government money. A neutral currency that is not tied to states and national borders could gain acceptance much faster than a fiat currency that is outside the sphere of national influence.
Especially since open standards are at odds with state money infrastructures. Our current monetary infrastructures, both technical and political, would present a bottleneck and barrier to interoperability for an economy built on open source and DeFi protocols.
Conclusion on US dollars, Bitcoin and others
Contrary to the currently popular opinion that the US dollar will be replaced as the key currency in the coming years, a steady loss of dominance is to be expected. It is currently not foreseeable that there will be a fiat currency that will replace the US dollar dominance. Rather, stronger regional fragmentation is likely to prevail. At the same time, decentralized networks could continue to grow over the next few years and decades and establish money in the sense of fiat currency substitutes. It would be naïve to assume that our monetary system will remain as it is today forever.
We are facing an exponential technological development that no country in the world can resist. It is impossible to predict exactly what this development will look like. This is precisely why it is important to consider different scenarios. Such a scenario implies a possible new role for money and money infrastructures.
Could Bitcoin therefore become a global reserve currency? Quite possible according to the thought experiment above. However, Bitcoin would not completely displace fiat currencies, but only replace them at the non-state-controlled value-added level. Fiat currencies would continue to exist because people still live in state-controlled regions and are therefore subject to state influence and control.