Written for the XRP Community Blog and published simultaneously on POM.
A connection between the North Korean peace summit and the global adoption of the digital asset XRP may not be holistically obvious to those of us who focus primarily on utility and the expansion of Ripple’s customer base and product offerings. Such connections aren’t easily supported by direct evidence and corporate announcements from either Ripple or the banks and institutions implementing xCurrent, xRapid or xVia. The sole function of Ripple and its business strategies is to develop product offerings and build corridors for the widespread adoption of XRP.
The function to remove the traditional obstacles for these XRP corridors belongs elsewhere with those who are uniquely equipped to manage and reverse the geopolitical and socioeconomic engineering which has taken place since the U.S. dollar was centralized within the international monetary system in 1944.
There has been an increased frequency of such geopolitical reversals taking place on the global stage since the implementation of the Trump doctrine, which is in spirit a renewal of Keynesian Economics. These changes represent a multi-pronged strategy involving XRP adoption running in parallel with the re-alignment of regional alliances and trade agreements. A more disciplined and modern approach to the reduction and elimination of the risks associated with military conflict provides a deeper level of engagement and importance around the achievement of XRP corridor milestones.
South Korea is one of the largest crypto markets to date and Japan is on the threshold of shifting the whole market into the next phase of adoption with SBI VC going live in the latter part of July. Consider the threat posed to both Seoul and Tokyo by a hostile and nuclearized North Korea. Open communication and commercial engagement with Kim Jung-un will allow for a correlation towards adoption to form on the peripheral boundaries of common understanding in the region.
Such a correlation becomes even more important when we add the possibility that SBI may be including a foreign currency exchange XRP service to streamline and capture 50% or more of the Tokyo based forex market. Consider that the three core forex markets in the world are based in Tokyo, London, and New York. This amounts to a considerable threat posed from an unstable North Korea right on the doorstep of one of the worlds largest forex markets.
But the more defined risk comes from the changing international role of the USD. The heavy American military presence in South Korea is justified by the existence of a hostile North Korea. Another lens would suggest that North Korea is hostile because of the large American military presence. But to further understand this dynamic we need to explore some of how the USD based unipolar world came into existence.
Though there are many facets to the rise of the unique brand of American Imperialism which began to evolve during the years between the two world wars, our focus will remain on the year 1944 and the agreement which took place at Bretton Woods, New Hampshire between 44 allied nations on the architecture of the post-war monetary system.
In September of 2015, I wrote an article titled The Bretton Woods Origin of the Cold War. The basic outline of that piece was that the British Economist John Maynard Keynes and the Soviets were both outwitted by the American double agent Harry Dexter White (who wore many masks) on the final wording of the agreement.
In order to understand where we are going, we need to understand where we came from. With that in mind let’s take a little side trip. Stay with me as it will be worth it and you will come out the other end with a much better understanding of the potential forces arrayed against Ripple and XRP and why caution must be used as each milestone is reached and each new challenge emerges.
From The Bretton Woods Origin of the Cold War:
Years after the Bretton Woods Conference of July 1944, Walter Gardner of the Federal Reserve found a yellowing piece of paper at Princeton. While salvaging through the personal papers belonging to Harry Dexter White from the time period of the American and British negotiations leading up to the conference, Gardner found the handwritten note, which stated:
In Washington Lord Halifax
Once whispered to Lord Keynes:
“It’s true they have the money bags
But we have all the brains.”
The authorship of the note has never been confirmed, but it is widely accepted that Sir Dennis Robertson, the British economist who handled financial negotiations with the American’s during the war, and played an important role at Bretton Woods, wrote the note during the first Anglo-American discussions on how to structure the post-war monetary system.
Some obvious questions immediately come to mind. Such as:
- Why was an Anglo delegate, one of Britain’s top economists, writing a note to the lead negotiator on the American team, one Harry Dexter White?
- Was this note given directly to White by Robertson?
- Did White find the note and keep it?
- How did White’s role as a Soviet spy factor into the content of the note?
- What is the reference to “they have the money bags”?
The last question is an easy one to answer. At the time of the Bretton Woods negotiations, the United States controlled two-thirds of the world’s gold. Whether this was through strategic accumulation, or some other covert means, such as mechanisms used during the war by the Bank for International Settlements, the reality of America’s superior monetary position was clear in the lead up to the conference.
The fourth question is somewhat more problematic and will take some explaining, as I am proposing that Harry Dexter White was behind a master counter-intelligence plan to maneuver the world’s most powerful countries, including Great Britain and the Soviet Union, into accepting, and ratifying a Bretton Woods framework which was structured around the US dollar as opposed to the bancor, the unit of account which was recommended by John Maynard Keynes.
During the 1930’s Sir Dennis Robertson found himself at odds with John Maynard Keynes and became very critical and unwilling to accept Keynesian theory and Keynesian policy. What caused this rift between two of Britain’s most influential economists is not clear.
This division in the Anglo team at Bretton Woods would lead to the failure of Keynes’ bancor asset and the rise of the American dollar as the global reserve unit of account. In this rift can also be found the seeds of the Cold War and the refusal by the Soviet Union to ratify the final Bretton Woods agreement.
At Bretton Woods, the British delegation was headed by John Maynard Keynes and his concept of the supra-sovereign unit of account which he called the bancor.
The American delegation was headed by Harry Dexter White and his concept of using the American dollar as the global unit of account.
The wording which was built into the agreement was very specific, as all 44 countries, including the Americans, British, and Soviets, all contributed to the framework of the agreement. One area which still required clarification was surrounding the term “gold-convertible currency”.
Benn Steil, senior fellow, and director of international economics at the Council on Foreign Relations wrote in his excellent book, The Battle of Bretton Woods, the following regarding this “inscrutable” term. It is best to quote directly from the book:
“At the 2:30 PM Commission meeting the matter of the inscrutable “gold-convertible currency” naturally came up. The Indian delegate wanted to know what exactly it was: “I think it is high time,” he interjected during a lengthy technical discussion in which White had invoked the term, “that the USA delegation give us a definition of gold and gold convertible exchange.” At that point, Dennis Robertson, the British delegate on the Committee, apparently imagining that the issue was one of mere bookkeeping suggested that “payment of official gold subscription should be expressed as official holdings of gold and United States dollars.” This change would, he remarked incautiously, require wording changes elsewhere in the agreement. Bernstein concurred with Robertson that “gold convertible exchange” was hard to define, and that getting a definition “which would be satisfactory to everyone here… would involve a long discussion.” But as a “practical” matter, he explained, since national monetary authorities could freely purchase gold for dollars in the United States, and international holdings of currencies which might be used to purchase dollars were small, “it would be easier for this purpose to regard the United States dollar as what was intended when we speak of gold convertible exchange.”
“White must have had difficulty concealing his flush of excitement. With Keynes preoccupied managing the World Bank proceedings, Robertson had walked straight into White’s trap. He now made his second critical maneuver, peremptorily ending the Commission’s discussion of the matter. “Unless there are any objections,” he said, “this question will be referred to the Special Committee.” No objections being raised, he quickly passed on to another issue.”
“The next morning, 9:30 AM on July 14, Morgenthau began a meeting of the full American team by reporting cheerily that White had “worked up until three o’clock this morning with the Drafting Committee on the Fund and he feels [the text] is in excellent shape.” Morgenthau had no idea what exactly that meant, and likely no interest. But among the achievements of the committee, comprised entirely of White’s technicians, was strategically replacing “gold” with “gold and US dollars” throughout the 96-page Final Act. White never submitted the changes for consideration in Commission One, yet they would become an important part of the IMF Articles of Agreement. Keynes would only discover them after his departure from Bretton Woods.”
The statement which speculates that “apparently imagining that the issue was one of mere bookkeeping” which is attributed to Robertson is absurd considering he was one of Britain’s greatest economists. Are we to believe that this peer to John Maynard Keynes would consider the use of one domestic currency as the global unit of account to be a “mere bookkeeping” issue?
The other part of the above quote which fails to pass the sniff test is the consideration that Robertson had fallen into the trap laid by Harry Dexter White. Again, Robertson would have been much too astute to have believed that such a move by the American’s would not be made to the detriment of Great Britain, and other member countries.
The more probable scenario is that Sir Dennis Robertson, the man who was at odds with John Maynard Keynes and wouldn’t support Keynesian policy, had sabotaged the original intention of the Bretton Woods negotiations by not communicating back to Maynard Keynes about what was happening.
As stated, Keynes was distracted by the World Bank proceedings and didn’t even catch the fundamental change until after he had left New Hampshire.
Though Benn Steil brushes over these obvious discrepancies, his book is nonetheless resourceful and should be considered an otherwise reliable testament to what happened at Bretton Woods in 1944.
In Washington Lord Halifax
Once whispered to Lord Keynes:
“It’s true they have the money bags
But we have all the brains.”
Robertson sharing such information with Harry Dexter White is suggestive of a betrayal and a fatal division within the British negotiating team. White would have been set on a mission to prove that the Anglo’s didn’t in fact “have all the brains.”
The Bretton Woods Conference took place in July 1944, at the Mt. Washington Hotel in Carroll, New Hampshire. The town was later renamed Bretton Woods to reflect the importance of the agreement which took place there.
The institutions of the World Bank and International Monetary Fund were created at Bretton Woods.
The intent of the agreement was to design the post-war global monetary system. Though most participants approached the agreement from the multilateral framework point of view, the United States had other intentions.
America was positioning itself to grab control of the world economy from Britain and prevent other rising powers, such as the Soviet Union, from gaining too much influence in the new system. The concept of a supra-sovereign unit of account, such as the Keynesian bancor, was never seriously considered by the United States and Harry Dexter White. It was always intended by the US that the dollar would be the global reserve currency or unit of account used in the new monetary framework.
White began planning on using the dollar as the global unit of account as far back as 1936 when he was a mid-level official at the US Treasury. This would strongly suggest that the concept of the supra-sovereign bancor was never seriously considered by the United States.
The other goals of the US and Dexter White at Bretton Woods was the liquidation of the British Empire after the war and the establishment of American hegemony.
The Soviet Union, originally onboard with a new monetary framework, and participated in the negotiations, refused to ratify the Bretton Woods Agreement. This has never been fully understood, but after the fall of communism, and the release of once-secret documents, it has become clear that the Soviets felt betrayed at Bretton Woods.
As stated above, the wording of the final agreement was altered by Harry Dexter White, the man who was considered by many to be a Soviet spy. Considering the information presented here, it is highly probable that Harry Dexter White was successful in running a complex and intense counter-intelligence operation against the Soviet Union.
It was only when the wording of the final agreement was distributed that the Soviets got wise to the operation. It’s not hard to imagine that White was feeding the USSR a steady stream of misinformation regarding the American position on restructuring the international monetary system.
The Soviets, to their credit, refused to sign an agreement which created global institutions as “branches of Wall Street”. Dexter White, once considered by the Russians to be their man in Washington, had led the Soviets down the garden path, only to betray them in the final hour.
From this moment on the Soviet Union and America became locked in the early hours of the cold war. What was once a great ally of the United States, Great Britain, and Canada, in the battle against Nazi Germany, now became a great enemy.
The actions and events which unfolded from that point in 1944 can be more easily understood through the context of what has been explained here. But before we review that last segment, let’s do a quick review of the American goals at Bretton Woods:
- Peaceably and profitably dismantle the British Empire.
- De-Industrialize Germany after the war.
- Convince the Soviet Union to join the United States in a global alliance.
- Elevate the domestic dollar as the global unit of account.
The Soviet Union was not forced, or manipulated, into the one-sided alliance with America. As such, the powerful Soviet empire had to be contained. At least from the American perspective.
From this moment the United States began a policy of isolating the Soviet Union and reducing the communist influence in the world. The increased push on the military forces to reach Berlin before the Soviets is the most obvious representation of this change in alliances in the immediate days after the Bretton Woods Conference came to a close.
You made it back to the main article. Great work you dog-eared researcher. The above information can now be applied to our ongoing analysis of the incremental and decades-long reversal of Bretton Woods and the international function of the USD.
It should be noted that not all those on the American side were in agreement with a global use for the domestic currency. Like Keynes, there were those who understood the imbalances which would develop in the years and decades ahead. This has been called the Triffin Dilemma or Triffin Paradox. To understand this we will turn to Wikipedia and its straightforward explanation:
The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. This dilemma was first identified in the 1960s by Belgian–American economist Robert Triffin, who pointed out that the country whose currency, being the global reserve currency, foreign nations wish to hold, must be willing to supply the world with an extra supply of its currency to fulfill world demand for these foreign exchange reserves, thus leading to a trade deficit.
The use of a national currency, such as the U.S. dollar, as global reserve currency leads to tension between its national and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account, as some goals require an outflow of dollars from the United States, while others require an overall inflow.
Specifically, the Triffin dilemma is usually cited to articulate the problems with the role of the U.S. dollar as the reserve currency under the Bretton Woods system. John Maynard Keynes had anticipated this difficulty and had advocated the use of a global reserve currency called ‘Bancor‘. Currently the IMF‘s SDRs are the closest thing to the proposed Bancor but they have not been adopted widely enough to replace the dollar as the global reserve currency.
In the wake of the financial crisis of 2007–2008, the governor of the People’s Bank of China explicitly named the reserve currency status of the US dollar as a contributing factor to global savings and investment imbalances that led to the crisis. As such the Triffin Dilemma is related to the Global Savings Glut hypothesis because the dollar’s reserve currency role exacerbates the U.S. current account deficit due to heightened demand for dollars.
The other important piece which we need to understand is the emergence of the military-industrial-complex which developed from the new financial power bestowed upon the American business and banking interests which quickly realized the wealth potential of Bretton Woods. President Eisenhower in his farewell address warned about this new form of Anglo-American establishment and its attempts to impose a de-facto hegemonic imperialism on the world through the use of the USD.
Without turning this article into a book-length treatise on the geopolitical and socioeconomic aspects of international dollar machinations the reader should consider that all American military conflict and expansion around the world since 1944 was strategically based on supporting and enhancing the international function of the USD. Even the SWIFT system of international payments was developed to improve the efficiency of the system and make it possible for economic sanctions to be imposed on those nations which wouldn’t tow the line and surrender to American hegemonic demands. This will be an important aspect of the threat posed by Ripple and XRP.
It should also be understood that no other nation wants its domestic currency to replace the international function of the USD. The Triffin Paradox is not unique to the dollar. The same imbalances would impact all domestic currencies in the same role. Analysts and journalists who suggest the Chinese renminbi will replace the dollar on the world stage do not understand all of the above which you now understand and can apply to everything you read moving forward. Monetary policymakers in Beijing have been working on an internationalization strategy for the RMB but it has more to do with allowing the domestic capital markets to be opened to international investors in a manner which will prevent manipulation from foreign actors who may desire to cause turmoil in China’s financial markets.
Okay, we’re learning a lot. Let’s keep slogging forward because we’re almost there.
As the function and influence of the USD is reduced around the world the rise of other nations becomes a paramount aspect which needs to be factored into our analysis. The emerging market nations, such as China, Brazil, and India, among others, are incrementally shifting the world from the unipolar dynamic towards a multilateral dynamic. This is where developing the XRP architecture becomes the major milestone towards a more balanced world.
As the USD unipolar monetary architecture is reversed and replaced we will experience dramatic changes in the world as old alliances wither and new ones, which are really old ones, re-emerge and allow for the development of new trade agreements and strategic resource alliances based on the regional efficiencies of bringing raw product to market. These changes will take place within and around all previous and existing USD centered points of crisis and military intervention. Everywhere from Iran, Ukraine, Syria, and the South China Sea will follow a similar path as the one taken by North Korea.
To assist us in understanding just how dramatic some of these changes may be, I’ll turn to my friend Velina Tchakarova and her unique and intelligent perspective on a changing world. Velina is Head of Institute at the Austrian Institute for European and Security Policy in Vienna, Austria. Her core work includes “research, consulting and lectures on Global System Transformation and geostrategy of global actors, particularly the EU’s role in Eastern Europe”.
Velina recently co-authored a study paper titled “Will the EU lose the East?” The paper is summarized as follows:
Major tectonic shifts have been emerging between Western and Eastern Europe in terms of politics, economy, and social issues. This emerging dividing line is being additionally affected by the actions and approaches of significant external actors on the old continent. Currently, there is a wide spread perception among the political elites and the expert community that the EU has not been doing enough and even might lose its East if the external influence combined with the internal integration dynamics continue exerting pressure on Brussels and the member states without being properly addressed. External centrifugal forces have been emerging strong and are now aggravated by the launch of the Chinese grand ambitions in the area encompassing the former Central European countries, stretching across the entire Balkans, and reaching to ‘the grey zone of countries’ that separate the EU from Russia in Eastern Europe. From the EU perspective, there is a solid trend of external actors becoming more active and competitive in this geographic area of Europe.
The paper aims to analyse whether the EU might lose its East because of external pressure and competition by examining the approaches of the USA, Russia, China and Turkey towards the three geographic areas of Central Europe, Western Balkans and Eastern Europe. In each chapter, the EU perspective will be presented at the beginning, followed by the analysis of common patterns as well as competitive strategies of the other main external actors from the last few years. In the case of the Visegrád countries from Central Europe, the purpose is to identify main challenges for the EU in dealing with these countries next to the assertive actions by competitors such as Russia and China. Moving from member states to EU candidates, the Western Balkans will represent a second case study, where most of the countries is still interested in joining the EU but must also face concerted actions by external actors. Eastern Europe is the third region, where countries are most of all split in their attitudes towards joining the EU or deepening the relations with the rest of the regional players.
The study is reflective of a changing world where the American hegemonic USD infrastructure is eroding under the pressure of traditional alliances and borders which have been shaped over thousands of years. The pressure building in Eastern Europe which Velina explores is reminiscent of the time periods in which the Hapsburg Empire and the Byzantine Empire controlled the East. Each of these was more aligned with Russia on trade and security then they were with the political, economic, and religious powers in the West. We should anticipate a North Korea type solution (Trump doctrine) to the West/East divisions within Ukraine and other nations which border on Russia.
While Ripple is developing the technology and corridors for XRP the responsibility falls on others to transform the geopolitical landscape and allow for the more aligned and functional corridors to spread around the world.
The recent comments by Ripple’s Senior Vice President of Product Asheesh Birla about Ripple’s desire to corner the market in India and plant its roots in the world economy are aligned with everything you have read above. Birla stated the following:
And so now, I think that in our pipeline we have probably 50% of the market in India, either integrated onto Ripple or in the deal, in the sort of pipeline to be signed to India. And guess what, we’re going to take that back to Wells Fargo, and we’re going to say ‘there’s not a better way to send into India than Ripple.
Taken in the context of what you have learned that is a powerful statement which sends an even more powerful message to those banks and institutions which are attempting to maintain the tired architecture of an even more tired monetary framework. Birla continued:
Because again it’s about network effects. And if we can do that in India and we can do that in Brazil and we can do that in all the emerging markets, I think it’s going to be really hard for – I mean, we won’t take no for an answer, and we’re going to continue to build the network until it’s so valuable that there’s no choice for Wells Fargo to join.
Most didn’t pick up on the mention of Brazil, but its likely that it wasn’t without intent. The emerging market nations have carried the brunt of USD exported inflation for decades through imbalanced exchange rate arrangements. The real power of XRP as a decentralized and supra-sovereign exchange asset will be found in its ability to allow these destructive and wealth-shifting arrangements to be replaced with blockchain and Interledger protocols.
In closing, we can anticipate dramatic geopolitical changes to take place in not just Eastern Europe, but also Pakistan, Iran, Iraq, Gaza, and Taiwan, as well as South America and Africa. There have been endless think tanks, nations, banks, institutions, and corporations which have taken advantage of the areas of arbitrage and rent-seeking which organically developed within the USD unipolar framework. As the reversal and replacement proceeds these gaps will close up and investment will look elsewhere for returns.
Ripple is working with over 50 central banks around the world, its executives are sitting on advisory boards and councils with the International Monetary Fund, Federal Reserve, and other major policymaking institutions. The XRP architecture and corridors are being developed and implemented around the world on multiple fronts with partners and investors from such powerful nations as Japan and Saudi Arabia.
We are witnessing both the monetary and geopolitical transformation of the world as we know it, though each is interwoven within the fabricate of the other. This article just scrapes the surface of what we have to learn and explore. It truly is a once in a century event, and this time it is Ripple who has all the brains. No mask this time. – JC