The current news from around the globe including Argentina, Pakistan, Haiti, Sri Lanka, Lebanon and across Africa paints a grim picture of global trade and finances.
The country currencies at the periphery of the dollar global financial system are in retreat. Capital is fleeing to the center (USD) at all levels of society causing the Dollar’s relative value to increase. Many small countries are effectively dollarizing. Either explicitly like El Salvador or in black market trading such as in VZ and AR.
In dollar terms commodities and goods that have been over produced will deflate as the world economy slows due to stagflation and malinvestment. This process, along with government policies restricting production, will ensure that sufficient investments in new production will not be made. Meanwhile, costs of goods such as food and other essentials will rise due to shortages in production resulting from global government actions including: pandemic response, sanctions, regulation and etc.
Rising debt payments due to rising interest rates and reduced export production of slowing economies is triggering the sale of assets to make loan payments and preserve capital. It is a cause of short to medium term deflation in financial assets and assets sensitive to rising rates. Trade imbalances, rising US interest rates, debt, inflation and slowing production will collide with 13 trillion (BIS) of foreign debt, trillions in derivatives and foreign held US bonds, stocks and real estate.
The US dollar is the world reserve currency. The US central bank (CB), soon faced by a myriad of crises including high unemployment, shrinking GDP, rising energy costs and global food insecurity will abandon its tightening under government pressure. Interest rates will again be forced lower by CB intervention. US government spending and CB easing (at 8% inflation the purchasing power is halved every 9 years) will steadily erode the dollar into the next decade. The value of the dollar for international trade has become uncertain.
As a result, economic conflicts between nations are on the rise. Sanctions impede the flow of capital between trading partners. Regulation by governments further restrict international exchange. The demand by many individuals, groups and governments for an alternative for trade has become a powerful driver for change.
As confidence in the global reserve currency is eroded and the demand for a alternative becomes essential, the transition to Bitcoin as a technology for exchange will commence between trading partners that are in search of an apolitical, fair and secure settlement alternative. Bitcoin brings utility with regard to international exchange including speed, final settlement of transactions, apolitical decentralization, no third party risk, nation state level security model and a fixed monetary policy. These factors make Bitcoin an obvious choice for government investment as the equal opportunity and inclusive international settlement technology.
Advances in Bitcoin engineering and Taproot development are making DeFi at scale using Bitcoin rails possible. Energy and commodities trading that leverage Bitcoin based DeFi contracts will emerge. Gold will play its role as a store of value and enhance Bitcoin utility as the record keeper in a secure and trusted trade settlement layer. Use of Bitcoin’s DeFi network as a trading layer will gradually transform the monetary energy of the underlying commodities, currencies and other assets within the Bitcoin trading ecosystem. Once trade volumes and the types of trade between trading partners can be transparently recorded and known then the relative trade weighting of local currency value can be calculated. The design of Bitcoin is fair and transparent. All participants benefit in proportion. No single participant, government or group has more control than another.
The transition will be complete. Bitcoin and its financial layers will have subsumed the international trade system. A new age of fair trade between politically and economically diverse forms of government and people can begin.