The Cryptocurrency Model: The Future of the Global Financial DrivingSector
“By 2030, some form of crypto will become the global reserve currency.” – Tom Golway, Planning and Managing ATM Networks
As Tom Golway posits in the quotation mentioned above, there is a strong likelihood that one of the primary cryptocurrencies such as Bitcoin will become the world’s reserve currency in the future.This view is also echoed in the article “Why Cryptocurrencies Could Push the Dollar from World Reserve Currency Status” published on 7 November 2017 by Forbes.com.
At this juncture, it is essential to be aware of the fact the United States Dollar is currently the global reserve (or base) currency. All international financial transactions are undergirded by and are dependent on, the USD. This is true even if neither of the currencies being exchanged is the USD.
Therefore, it is logical to assume that the successful digital currency will push the US Dollar off its pedestal.
Secondly, it is equally important to remember that a cryptocurrency has two elements: The coin and its underlying blockchain ledger. Therefore, not only will the cryptocurrency coin disrupt the US Dollar’s position as the global reserve currency, but the associated blockchain technology will disrupt the way the global financial industry currently functions.
Thus, as the head of the International Monetary Fund, Christine Lagarde warned in September 2017, cryptocurrencies have the potential to displace central banks, traditional banking and national currencies in the long term.
It can be assumed that part of Ms Lagarde’s raison d’etre is based on the fact that the country that holds the world’s reserve currency also holds power over all the global financial transactions.Consequently, the US domestic fiscal policy and associated monetary decisions have becomeinternational monetary policies and decisions. As such the rest of the world’s countriesneed to adhere to US domestic monetary policy. Additionally, any decisions taken by the US Fiscus or US Central Bank must be upheld by the rest of the world.
Therefore, as Ms Lagarde has noted (and concurred by Jones Mutual cryptocurrency specialists) if a cryptocurrency takes over the USD’s role as the reserve currency, the United States will lose its position as the controlling fiscal power.
Blockchain technology: Driving the way forward
Most people are aware that a number of the more established digital currencies like Bitcoin can be used to pay for goods and services via an electronic wallet. However, equally importantly, as mentioned above, the crypto’s underlying blockchain technology has the potential to disrupt the way the financial and business sectors currently operate.
The simple answer is that one of the basic tenets of the cryptocurrency model is decentralisation. In other words, cryptocurrency transactions are not stored on a central server. Each transaction is stored on a decentralised network node that is primarily enabled by the currency’s associated blockchain technology.
Simply stated, when a cryptocurrency transaction is concluded, it is recorded on a blockchain node (or block). Each block contains an encrypted reference to the previous block so that they remain linked together irrespective where the blocks are housed.
This is in direct opposition to the way the global central banks operate. All banking and financial transactions are stored on central servers, even if they are situated in the cloud.
Cryptocurrencies: Who controls the global fiscus?
Thus, the question that begs is: if a cryptocurrency takes over from the US Dollar as the world’s reserve currency, which country will control the global fiscus?
The simple answer is that because the cryptocurrency model is a decentralised model, no single country can have control of the world’s financial sector. And, in all likelihood, the USA will no longer be the world’s economic superpower.
There is no doubt that if this scenario occurs, we will be in uncharted waters. And time will tell whether (and how) the current central financial model will adapt to a decentralised model.
Finally, what is almost certain is that the geopolitical machinations from the world’s central monetary power will no longer be able to destroy other currencies and economies. A typical example is that of the United States and Turkey. For many reasons, including Donald Trump’s utterances, the economist.com reported on 10 August 2018 that the Turkish Lira has lost about 40% of its value from January 2018.