Todays world
If we take look at the state of the world’s economic affairs today, we’ll find many reasons why an immutable and decentralized digital currency is more appealing than a weaponized currency issued by a central bank.
The reason being, that the central banks of the world have committed themselves to supporting assets and lowering lending costs to such a degree that their backs are now up against a wall.
Central banks have already put minus marks in front of short term loan rates, there is not much more they can do if they want to stimulate the economy. Add a potential currency war on top of record low-interest rates the only policy they can enact is to print more money. This will conclude in extreme inflation of dollars, euros, and yuans by the time you receive your first pension check.
Already today, we see that these trade wars have already begun, which is for all intents and purposes a currency war. The USA has demanded that China let their Yuan free float because it would almost surely allow it to rise against the dollar. Chinese authorities pushed the Yuan lower, to increase exports. It’s not about tariffs, it’s about fair trade based on free price discovery in the currency markets.
Direct assault
Last Friday, the USA threatened China. They told their counterparts that the US could potentially buy Yuans for $146 billion, which would send the exchange rate higher. This would start an OPEN currency war if the Chinese counter the attack by selling more Yuans. Basically, two central banks competing on who’s got the most cash to destroy the other.
There is another policy amendment on the president’s table right now; a currency tax on the dollar. This would weaken the dollar, and send Yuan higher, making the US more competitive and China less so.
This is how the global currency market is today. Central banks and governments use national currencies to wage war, failing to stimulate the economy, but most definitely inflate asset bubbles.
This is where cryptocurrency chimes in. The maximum bitcoin that can exist is 21 million. No more coins can be printed after this. Not only is there a finite scarcity of Bitcoins, but mining rewards are going to be halved next year. This means fewer coins being minted. As the central banks prints more money, the number of new Bitcoins decreases.
Stablecoins
That is why the central bank governor, Mark Carney, who is situated in the UK, just stated that a “libra like” currency will dethrone the almighty dollar, and that is a good thing. There are many countries that want to get out of the stranglehold of the dollar. Especially Russia and China. According to sources China is actually ready to launch a digital Yuan. The CEO of Circle, Jeremy Allaire, just held a speech where he said a digital currency from China would let them bypass western banking rules through direct settlement.
This diminishes the power that the US holds over the world through its dollar banking lines. Right now most banks need to have a line to the federal banking system if you want to touch dollars, either through client transfers or the banks’ own bond financing tools. The US has weaponized this system by shutting down banks they don’t like for political purposes.
Trust
Looking at how today’s fiat currency market is being inflated and manipulated by central banks an governments, it is unreasonable that Bitcoin is the one that’s being scrutinized. It’s just an immutable ledger that lets you transfer trust directly to a counterpart. It has already seen an increase in the retail markets, and it will surely get to the world’s big financial institutions soon. Then we’ll see how professional investors price risk between a weaponized and overprinted fiat currency versus a secure blockchain