The End of the USD? Not Likely

When a point of view is wrong for 30 year, is it still worth listening to?

It seems when it comes to the US dollar, we are told any day now. What am I referring to? Naturally, this is the end of the USD. It is decades in the making.

Or so we are told.

Unfortunately, this is a false narrative. As stated, this is something espoused for decades, driven by hatred or false narrative.

The End of the USD? Not Likely

Everything is going to displace the dollar. Didn't you get the memo.

We have to declare the US dollar as the most hated currency in history. From the gold bugs to Europeans, it is panned widely. In fact, the Europeans were so confident in their superiority that, when starting the EU, it was declared that the economic zone would compete with the United States.

As far as the currency, the euro was going to end the US dollar's dominance. Here is the headline from an article in 1998.

How did that turn out?

The EU is in total decline. We are seeing the end to Marxist utopia they hoped to create. The debt levels are such that the only way out is default. Macron fancies himself Napoleon, leading Europe to a great victory over Russia. This will lead to WW3.

When the bullets start flying (or missiles), the US dollar will be where everyone runs. Rarely do you hear the talking heads on television, economist or not, mentioning international capital flows. How many times did you notice CNBC mentioning capital controls?

These are all important concepts that get overlooked.

Capital flow is also why the US equity markets can go up, especially the DJIA, as the global economy is tanking. The DOW reflects international capital flows better than the other two exchanges. Institutions tend to move large sums into the large cap stocks while take a rather conservative approach. They are not going to buy up large sums of Meta or Tesla.

Get Out Of the 1920s

Unless one understands the banking system, one really doesn't understand money. It is not governments that run things nor central banks. Most of the legal tender under fractional reserve banking is created by the commercial banks since we do not use cash for many transactions.

This means ledger based money.

Of course, outside physical cash, it is all a ledger. It has been that was for 70 years. The offshore dollar system started around 1955, making the central banking system obsolete.

Today, we have cryptocurrency. Again, we have a lot of confusion. Most of the "currency" are really crypto-assets. Bitcoin, Ethereum, and a host of other coins (tokens) are assets. They do not serve as a viable medium of exchange.

The only currency comes in the form of stablecoins. These have the parameters required. Most of this is due to the US dollar which, not surprisingly, is the dominant stablecoin.

All of this means we are dealing in a digital world. Here is where the key to success changes. In this realm, network effects are the dominating force. When it comes to currency, guess what totally dominates?

Of course, we have to keep in mind that currency changes. In the offshore dollar system, it is not legal tender that dominates. Instead, it is T-bills. These are card blanche. Then we have the banknotes from the central bank, something that went out with the Mosaic browser. Finally, we have the "digital" dollars from the commercial banking system, which is ledger (like crypto) run by those institutions.

A banknote or any other form of physical cash is akin to snail mail. We are in the internet age. Trying to rebuild the pony express is not a viable solution going forward. In fact, we are looking at a situation where the present structure, commercial banks being responsible for the money supply, is simply to slow and archaic.

This is where crypto enters. My guess is stablecoins, mostly USD denominated, will be the next wave. Government will try to force asset backing but "dark" stablecoins (algorithmic or synthetic) will likely gain in usage over time.

Here we are looking at the dollar no longer being a currency but, rather, a measurement.

Posted Using INLEO