There are many reserve currencies in the world, from the US dollar to the Chinese yuan, the Japanese yen, and more. But the dollar is by far the most popular in use for the exchange.
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Bitcoin-based commerce centers on the idea that BTC can also act as a reserve currency that works in parallel with other reserve currencies. The resulting geopolitical reality will be one in which supply and demand are at the forefront of influence between states. Those who possess the raw materials, manufacturing capabilities, or any other number of critical inputs to global trade will be able to negotiate based on the demand for those inputs. This will be enforced by the unit of exchange, Bitcoin, which remains a largely apolitical settlement network.
The importance of timing
There are many challenges facing the global economy. Two, in particular, are the product of the once-in-a-generation alignment of unique circumstances. The first is the need for an effective, relatively apolitical, and anti-fragile backup system. The second is the increasingly demanding requirements for vital inputs to the global economy. These are inputs such as raw materials, manufacturing costs, specialized manufacturing processes, intellectual property protection, and so on. The important and necessary input sources for all world trade are in transition. The timing may be just right for the geopolitical leverage that has traditionally come from the global need for dollars being largely pegged by a new unit of exchange, Bitcoin.
Whether the dollar should be replaced from the current hierarchy of reserve currencies is a topic for another time. Even just a few years ago, considering Bitcoin as a meaningful addition to existing reserve currencies would have been an impossibility. However, Bitcoin is now a viable participant due to the size and level of decentralization of the network.
Far from any public skepticism or regulatory inertia, the Bitcoin blockchain has been far too slow and too energy-intensive to be a viable global reserve currency. Fast forward to today, the network has a feature set that can power the unique solutions needed for exactly this.
Simply put, the Bitcoin network is becoming more powerful and multi-functional by the day. The emergence of the Lightning Network makes it easier for participants to manage incoming and outgoing liquidity effectively. This is important because as large countries and companies adopt the Bitcoin network, smaller countries and companies will follow. The Lightning Network continues to expand rapidly and will soon be able to handle this volume fast enough to compete with fiat currencies at multiple levels of trade.
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The second major challenge is the growing need for vital inputs from the global economy. These are the inputs that represent the supply side of the market. This includes raw materials such as petroleum, computer chips, lithium and aluminum – and very specific manufacturing processes that require a highly specialized or very inexpensive manufacturing. Another thing is the ability to legally protect ideas. There are many categories of significant supply-side inputs, but the bottom line is this: without the use of monetary policy leverage and restrictive trade settlement, the ability of those countries with significant supply-side inputs to negotiate geopolitically increases dramatically.
The sea change this will open cannot be overstated. It will be such that entities such as the Bank for International Settlements (the bank of central banks), the International Monetary Fund, the World Bank and many other global financial institutions will lose some of their political power. This is important because, as history has shown, these institutions wield outsized political influence that is inconsistent with the economic reality they claim to support.
Let’s take the example of the International Monetary Fund. Alex Gladstein has done extensive research to better understand the complex relationship between entities such as the Bank for International Settlements, the International Monetary Fund, and the World Bank and the countries they lend to. According to Gladstein, the IMF made loans “to 41 countries in Africa, 28 countries in Latin America, 20 countries in Asia, eight countries in the Middle East and five countries in Europe, affecting 3 billion people, or what were then two Two-thirds of the world’s population.
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In order to do business with the IMF, a country must join the IMF. One of the requirements for joining is a deposit denominated in the country’s local currency as well as “harder assets” such as gold, dollars or European currencies. There are 190 countries that have joined so far. When a member country needs a loan for an emergency project or a large infrastructure project, it usually obtains this loan in