GameStop, Musk and cryptocurrency could end global inequality and weaken American power

Without the built-in poverty that a dollar-linked economy brings, we could create not only a more prosperous world, but a more peaceful one

Muhammed Yesilhark@Yesilhark
Tuesday 02 February 2021 10:56
comments
<p>‘Bitcoin’s core appeal is its democratising power – that individuals can use digital assets to free themselves from the whims of policy makers in DC, London or Frankfurt’</p>

‘Bitcoin’s core appeal is its democratising power – that individuals can use digital assets to free themselves from the whims of policy makers in DC, London or Frankfurt’

The GameStop raid – with endorsements from Elon Musk and hedge fund billionaire Ray Dalio – is driving Bitcoin into the mainstream. But crypto’s revolution doesn’t depend on retail investors in the US or Europe.

Bitcoin will come of age, when (not if) an emerging market central bank starts deploying it as part of their foreign reserves, and simultaneously decouples from – and permanently breaks – the existing global order.

Bitcoin’s core appeal is its democratising power – that individuals can use digital assets to free themselves from the whims of policy makers in DC, London or Frankfurt. It’s time that developing economies realised that the same is true for them; but on a larger, more transformational scale.

This would change the balance of economic power for good, and do for global equality and opportunity what decades of aid, development programmes and IMF loans has failed to do.

This a natural – perhaps even inevitable – progression for Bitcoin, whose rise has been inextricably linked to cracks in the old order (and its regulation) since 2008.

It is not surprising that the largest uptake of Bitcoin is in countries who have a living memory of dictatorship and are sceptical towards centralised control: China, Venezuela and Germany.

The Nobel Prize winning economist Friedrich Hayek said in 1984: “I don't believe we shall ever have a ‘good’ money again before we take the thing out of the hands of government… by some sly roundabout way, introduce something that they can't stop.”

That is exactly what Bitcoin is doing. It’s time the governments of the global south, against whom the economic odds are stacked, joined the cause.

The Guttenburg printing press democratised learning. The internet democratised information. Blockchain and cryptocurrency is democratising finance.

But the governments who have the most to gain from global financial democratisation are still resisting the opportunity. As a result, we are still in a situation where one nation (the US) and its currency (the dollar) wields a disproportionate amount of power in the global financial system.

Many global economies, especially emerging economies, hold so much foreign reserve in USD that they are directly susceptible to Washington’s monetary policy. For example, in 2013, the Federal Reserve started to slow its policy of quantitative easing (money printing), known as the ‘Taper Tantrum’.

The value of the USD and US bond yields spiked, leading to prolonged stress in the “fragile five” countries most dependent on foreign investment: Brazil, India, Indonesia, Turkey, and South Africa.

As more world leaders look at recent events in the United States and ask how they can make their economies less dependent on Washington, Bitcoin should be a part of the answer.

That dependency has deep roots. In 1944, delegates from 44 different countries met in Bretton Woods, New Hampshire, to devise an international financial system that would prevent future war and depression.

Their answer was to crown the USD as the world’s reserve currency, meaning it was backed by the world’s largest gold reserves. The USD, in the context of 1944’s post-war politics and prosperity, was the sensible choice at the time. Surely it’s time for an update, three-quarters of a century later?

Former French President Charles de Gaulle said in 1965: “We consider it necessary that international trade be established ... on an indisputable monetary base and one that does not bear the mark of any particular country.” That could be Bitcoin’s elevator pitch.

Crypto-sceptics will argue that Bitcoin is too risky for already fragile or developing economies to invest in, and that the ‘brand’ of the US dollar is still stronger – for now. But research suggests otherwise, and it is a matter of time until perceptions catch up with reality.

The Central bank of Barbados published a paper entitled: “Should Cryptocurrencies Be Included in the Portfolio of International Reserves Held by the Central Bank of Barbados?” Their answer was, in a word, yes. A Monte Carlo analysis has reached similar conclusions. 

Ironically, it is only by an emerging market central bank holding Bitcoin that its reputation as a stable foreign currency reserve can be established. It is more simply a matter of which country will set off this domino effect, and profit hugely in the process.

Financial inequality is a proven indicator for the likelihood of conflict – conflict that costs us all. Research from Yale has indicated how a country with a GDP per capita of $250 has a 15 percent chance of descending into conflict in the coming five years; while, in a country with a GDP of $1250 per person, the chances are less than 4 per cent.

Without the built-in poverty that a dollar-linked economy brings, we could create not only a more prosperous world, but a more peaceful one.

It is only a matter of time, and which emerging market central banker is ready to opt out of a system that is fundamentally rigged against them. That could create a future that even Elon Musk isn’t ready for.

Muhammed Yesilhark is a Senior Advisor to digital assets manager NOIA Capital and the founder of Q2Q Capital. He spent 14 years in the hedge fund industry in London managing assets in excess of USD 4 billion.

Join our new commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

View comments