Where Blockchain Decentralization and Socioeconomic Multilateralism Intersect
“It should have been so obvious.”
As the trade war between China and America develops, two interesting side stories are coming into focus. These side stories have been building for years and are only now entering into their fundamental phase of escalation, transformation, and alignment.
But first, the growing trade war:
“We believe this is a battle between unilateralism and multilateralism, a fight between protectionism and free trade,” the Chinese Ministry of Commerce said. “This is not good for China, or the world. Facing this serious problem, we must fight resolutely. We have prepared with a bottom-line mindset and have planned detailed action. We won’t start a war, but if someone does, we will definitely fight back.”
This statement is a response to President Trump’s threat to impose $100 billion in additional tariffs on China. Both sides feel justified in their positions and are implementing counter-strategies which will have profound impacts upon the world.
The truth of the matter is that the Chinese Minister was spot on. This is a battle between unilateralism and multilateralism. To better understand the fundamentals of this battle, readers can reference the article The Real-World Potential of Ripple, which details the relative short history of the US dollar as the primary reserve currency used to balance global trade, and its inevitable replacement with a supra-sovereign monetary asset which isn’t controlled, or manipulated, by any one nation, or institution.
It is often suggested that China holds leverage over America because of the large amount of US debt which is held in the foreign exchange reserve account of the People’s Bank of China. The $1 trillion USD plus in this account is equally as threatening to China as it is to America. Both know this and both may, at some point along the way, decide that the consequences of reducing these reserves through sudden market dumps may be worth the immediate and long-term risks.
China could exchange a small or large portion of these reserves into something else, but on the end of every exchange there has to be a buyer and a seller. Also keep in mind that a devaluation of the USD is in America’s long-term interests, as it would facilitate a lowering of the trade deficit through increased exports as American made goods became more affordable. Reducing international demand for dollars is a part of this strategy.
The American banking and business establishment is tasked with maintaining global hegemonic influence while international dollar usage shrinks and the geopolitical sphere transforms to reflect the increasing dominance of the emerging markets within the Eurasian continent. Maintaining a policy based around unilateralism would be counter-intuitive as the architecture of the world’s monetary and financial systems shift towards one based on multilateralism. The geopolitical architecture will begrudgingly be forced to transform as well, but not without tension and periods of escalated aggression.
Another area where China may have some leverage is over its control of a large percentage of the raw resources which are produced globally. China has been importing vast amounts of coal and metals. This raw product is used in production and if American access was reduced to these materials and products, it could cause some serious ripple effects in the domestic economy. Something I’m sure the Trump strategy team is well aware of. (It is worth considering the recent announcement of a Ripple XRP based metals exchange.)
A few days ago an executive from Ripple, the blockchain based cross-border payments-solution company, stated that they were working with 40 to 50 central banks. This is a profound statement, as it amounts to around a third of the central banks in the world. As the crypto asset market cap increases, and the fiat currency market cap decreases, central banks will be looking to increase the amount of crypto assets they hold in their foreign exchange reserve accounts, while reducing the amount of fiat held.
This is where a Chinese strategy to exchange held USD for crypto assets could come into play. The devaluation of the USD will not have the negative impact on Chinese holdings if the loses associated with those devalued holdings is offset by the appreciation of increasing crypto asset holdings. China could exchange and diversify a portion of their USD reserves for a crypto asset, or number of crypto assets.
Based on the expanding usage of Ripple’s XRP inside and outside of China, it’s not hard to reason that exchanging USD reserves for XRP would be something worth considering by the Chinese monetary authorities. Some of the XRP being held back by Ripple could be used specifically for such a purpose. It would further validate XRP as the dominant global monetary asset which exists on a decentralized interledger protocol, and which also is not controlled or manipulated by any one nation or institution.
Other nations would take notice and the decreasing international demand for USD which followed would cause the USD to devalue against XRP as XRP demand increased. It would allow the American domestic currency to be released from its international accountabilities and provide further opportunity to adjust America’s domestic economic policies to reflect the changing trade environment.
As more central bank validators are added to the XRP ledger, the ledger will become even more decentralized. This is exactly what nations like China would want. It is even in America’s long-term interest to encourage such a transition from centralized unilateralism to decentralized multilateralism.
It is not an exaggeration to state that we are living in a profound time of change right now. The movement of wealth and value around the world has built and destroyed empires for thousands of years. With decentralized ledger technology (blockchain) the movement of wealth and value around the world can now happen in seconds for just fractions of a cent. No one entity controls it. No one nation or conglomerate of business and banking interests can reap the majority of benefits.
“It should have been so obvious.”
Back to the two side stories – one is the development of the crypto market, and the other is the transition to the multilateral framework which has been incrementally happening for years now. Both stories are being overshadowed by the growing trade war between America and China. Yet, it is that very same trade war which could fulfill the ultimate potential of both the crypto market and the multilateral promise of global balance and access to wealth around the world.
When open borders promoter George Soros himself is starting to invest in the crypto market, you know the big central bank and institutional money is not far behind. We are on the cusp of a global transformation which will lay the foundations for the next century of human endeavor. – JC
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