[Cryptography] Our leader opines on cryptocurrencies

Jerry Leichter leichter at lrw.com
Mon Jul 22 06:33:07 EDT 2019

> To understand the attraction of a global currency, you really have to be one of the people whose native currency isn't USD. The point is pretty clear then.
(Getting far away from crypto...)  The interesting thing is how little the tradeoffs are talked about.

The USD use as the global currency was a deliberate decision as part of the creation of the modern international economic system.  It provided - and continues to provide - huge benefits for the world as a whole by introducing a measure of stability into the global economic system:  Pricing agreements in dollars removes one element of price risk.  (There's always a risk relative to your own currency, but at least you don't have to worry about your counterparty's currency at the same time.)

On the one hand, this grants the US immense power over the entire system, because in the end it and it alone controls the printing of dollars.  On the other, the whole system only works as long as the US forgoes use of that power - or exercises it in the direction of stability rather than its own gain.  For the most part, things worked that way.  The US permitted - indeed, encouraged - what could be described as the growth of economic competition to its own post-WW II supremacy, first in Europe, later in Asia.  It could instead have worked to suppress both.  (Certainly there are times and places where it did so, but overall ... imagine where the rest of the world would be if the US had maintained a mercantilist policy.)

Our current Dear Leader is trying to move in exactly a mercantilist/America First direction - and one of the first reactions is the first stirrings of a move toward the possibility of other international currencies and banking systems that are not so heavily under US control.  The Euro is certainly a quickly-available alternative.  I'm sure the Chinese have all kinds of long-term plans for the renminbi.  Certain elements of our political system see this as a positive - getting the rest of the world to "stop taking advantage of us."  They may get their wish - and discover that the new system they create - controlled either by a consortium that takes forever to make any decisions, or a much more decisive power that sees itself as the US's natural successor - isn't quite what they asked for.

Note that no one is suggesting, say, the ruble as the next international standard currency.  To play this role, people have to have faith in the economy behind the currency.  It has to be large enough not to be readily manipulable in the markets.

Much of this is a confidence game - not in the negative sense, but in the need for confidence that the stability of the selected currency can be, and will be, maintained.  Does anyone really see Facebook and a new "currency" out of nowhere gaining that kind of confidence?
                                                        -- Jerry

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