Did The Currency War Cause The Bitcoin Softwar?
As I’ve mentioned many times before, the largest dangers are now financial and not physical. This is being increasingly recognized at the International-level by savvy leaders and the governments they represent.
A currency war is a scenario in international economics where countries deliberately try to devalue their own currencies relative to others.
The primary goal is to make their exports cheaper and more attractive on the global market. It’s economic steroids if your economy is built to export services or goods. However, this strategy can have far-reaching consequences and often triggers retaliatory actions from other nations.
It may even spark the genesis of a reset to the global fiat monetary system.
How currency wars are waged:
Initial devaluation: A country can devalue its currency through various measures, such as lowering interest rates or directly intervening in the foreign exchange market by selling its own currency and buying others.
Impact on trade: A weaker currency makes a country's exports cheaper for foreign buyers, increasing demand. This can help reduce trade deficits and stimulate economic growth.
Retaliation: Other countries may view the devaluation as an unfair trade practice and respond by devaluing their own currencies. This can escalate into a "tit-for-tat" situation where multiple countries engage in a race to the bottom, devaluing their currencies in an attempt to gain a competitive advantage.
Consequences: While currency wars can provide a short-term boost to exports, they can also lead to several negative consequences. These include inflation, capital flight, and increased volatility in the global financial markets. They can also damage international trade relations and lead to protectionist measures.
This has played out over and over again.
Many countries engaged in competitive devaluations during the Great Depression to boost their exports and protect domestic industries. This ultimately worsened the economic crisis in most economists view.
More recently (circa 2010s) following the global financial crisis, some countries, including China and Japan, were accused of manipulating their currencies to gain a trade advantage.
This sparked concerns about a new currency war. It also accelerated adoption of a global medium of exchange that can’t be manipulated, nor is the supply sensitive to demand. That last part is key. Central bankers worldwide keep printing cash because there is a strong incentive and very little disincentive. Some modern monetary theorists believe printing cash and generating unbelievable debt actually grows the economy in a healthy and sustainable way.
Intuition challenges that.
Currency wars are complex and controversial, with differing views on their effectiveness and long-term consequences. The concept is closely linked to international trade, monetary policy, global economic imbalances and dozens of other complex issues.
As I’ve teased, modern currency wars and the rise of alternatives to the US dollar as the international reserve currency are closely intertwined with major consequences on the future of our global order.
The current spat of currency wars were escalated by the US itself through policies like quantitative easing, which eroded trust in the dollar's stability. When the US prints massive amounts of money, it devalues the dollar and creates inflation concerns for countries holding dollar reserves. This has prompted nations to seek alternatives to diversify their holdings and reduce their exposure to dollar-related risks.
As currency wars intensify, countries are actively looking to diversify their reserves away from the dollar.
This involves increasing holdings in other major currencies like the euro, yuan, or even exploring new reserve assets like gold, digital currencies or a basket of different resource-backed assets. This trend diminishes the dollar's dominance and opens doors for other currencies to play a more significant role in the global financial system.
In some cases, the rise of alternative reserve currencies is also driven by geopolitical factors. Countries seeking to challenge US dominance or reduce their reliance on the US-led financial system may actively promote their own currencies as alternatives to the dollar.
This is particularly evident in regions like Asia, where the yuan is increasingly used for trade and investment.
The emergence of alternative reserve currencies can also influence the dynamics of currency wars. As countries hold more diverse reserves, they are less vulnerable to the actions of any single currency manipulator. This can make currency wars less effective and potentially discourage countries from engaging in competitive devaluations.
The long-term implications of this shift are still unfolding. While it is unlikely that the dollar will be completely replaced as the dominant reserve currency anytime soon, its share is expected to decline.
This could lead to a more multipolar global financial system, where several currencies play significant roles.
It also sets the table for the increased adoption of Bitcoin.
Bitcoin Changes The Currency War Dynamics
The emergence of Bitcoin as a collateral asset marks a significant shift in the global financial landscape. Its unique properties – scarcity, hardness, portability, and appreciating asset value – have attracted the attention of diverse stakeholders, from sovereign nations to individual households.
Bitcoin's fixed supply of 21 million coins offers a compelling hedge against the inflationary tendencies prevalent in many debt-ridden economies. As central banks engage in quantitative easing and other expansionary monetary policies, the purchasing power of fiat currencies erodes. Bitcoin's predetermined scarcity, in contrast, ensures its value won't be diluted by arbitrary increases in supply. This characteristic resonates with investors seeking to safeguard their wealth from the ravages of inflation.
Unlike traditional assets subject to the whims of central authorities, Bitcoin's decentralized nature makes it resistant to manipulation and debasement.
Its underlying blockchain technology ensures transparency and immutability, preventing any single entity from altering the rules governing its issuance or supply. This "hardness" appeals to those who distrust centralized financial systems and seek assets that operate outside the control of governments or institutions.
Bitcoin's digital nature and decentralized infrastructure facilitate seamless cross-border transactions, eliminating the friction and delays associated with traditional financial instruments. This portability is particularly attractive for international trade and remittances, where Bitcoin can streamline processes and reduce costs. As global interconnectivity increases, the demand for assets that can move effortlessly across borders is likely to rise, further bolstering Bitcoin's appeal as collateral.
Bitcoin's remarkable price trajectory, while volatile, has demonstrated its potential as a long-term store of value. Its market capitalization has grown exponentially, surpassing that of many established companies and even some countries. This upward trend, coupled with its scarcity and growing adoption, suggests that Bitcoin could continue to appreciate over time.
More Than Just Money
Seeing all of this playing out, investors, institutions and nations are increasingly moving to Bitcoin. The future may see a world where Bitcoin is not only a digital currency but also a cornerstone of the financial system, reshaping how we perceive and interact with money and a lot more.
Going beyond wealth, Major Jason Lowery's impressive 400-page thesis "Softwar" explores Bitcoin's potential as a tool for national security and power projection as well.
Drawing upon military theory, political theory, and computer science, Lowery argues that traditional, abstract power structures, reliant on belief systems and enforced by physical power, are inherently vulnerable to exploitation.
Lowery posits that "bitpower" derived from the energy expended in Bitcoin mining, represents a new domain of power projection, analogous to land, sea, or air power. He suggests that nations may need to engage in softwar or competition for control of this bitpower, to ensure their security and freedom of action in cyberspace.
Traditional warfare relies on physical force and the control of tangible assets, such as territory or resources. Softwar however, leverages the unique characteristics of cyberspace to achieve similar strategic objectives through non-kinetic means.
One of the key ways softwar challenges traditional notions of warfare is by demonstrating how physical power can be projected through cyberspace. Traditionally, projecting physical power involved the use of armies, navies, or air forces to control physical spaces. Softwar argues that similar effects can be achieved by imposing physical costs within the digital realm. Instead of destroying physical infrastructure, softwar aims to make it economically or computationally impractical for adversaries to operate in cyberspace.
By demanding a significant expenditure of computational power, proof-of-work systems can impose a real-world cost on those attempting to attack or manipulate them.
Just as traditional warfare has often acted as a counterbalance against empires or authoritarian regimes this new paradigm with its emphasis on open-source protocols and distributed networks, could offer a similar check on the concentration of power in the digital age.
The ongoing currency wars and the rising Softwar suggest a potential path towards Bitcoin adoption as a global standard.
The Currency Wars and Bitcoin's Appeal
Bitcoin's rising adoption as a collateral asset is reshaping the landscape of currency wars. Its decentralized nature, scarcity, and appreciating value challenge the traditional tools and strategies used in currency manipulation. While it offers the potential for de-escalation and a more balanced global financial system, it also introduces new complexities.
As fiat currencies lose value due to inflation and manipulation, investors flock to Bitcoin as a hedge, driving up its price and demand. Central banks and institutions, wary of holding devaluing fiat currencies, are starting to diversify their reserves with Bitcoin, further legitimizing it as a store of value.
The narrative of Bitcoin as "digital gold" and a hedge against inflation solidifies as currency wars demonstrate the fragility of fiat currencies. Countries accumulating Bitcoin are starting to gain a strategic advantage in the global financial landscape, potentially leading to a shift in power dynamics and new forms of economic competition.
As trust in traditional fiat currencies erodes due to competitive devaluations and inflationary policies, Bitcoin's decentralized and finite nature becomes increasingly attractive. Its resilience against manipulation and censorship aligns with the concerns raised by Lowery regarding the vulnerabilities of traditional, centralized power structures.
The concept of "bitpower" as a new domain of power projection reinforces Bitcoin's potential as a global standard.
As nations recognize the strategic importance of cyberspace and the role of Bitcoin's proof-of-work in securing it, they may be incentivized to accumulate Bitcoin as a form of digital "land."
This could lead to a self-reinforcing cycle of adoption, as increased demand further solidifies Bitcoin's value and security.
The Softwar we see playing out now leads to a future where Bitcoin's open-source protocols and distributed network act as a counterbalance against the concentration of power.
As this materializes, we’ll watch Bitcoin become not only become a global monetary standard but also a tool for promoting freedom, security, and sovereignty for each of us.
In the long term, the erosion of trust in fiat currencies and the rise of Bitcoin are paving the way for a new, decentralized monetary system with Bitcoin at its core. The evolving role of Bitcoin in international finance will undoubtedly have far-reaching implications for the future of global economic power dynamics, and the lives of each of us.
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