Bitcoin as the Successor to the Dollar as Global Reserve Currency
"Writing in the late 1970s, Hudson predicts that “without a Eurocurrency, there is no alternative to the dollar, and without gold (or some other form of asset money yet to be accepted), there is no alternative to national currencies and debt-money serving international functions for which they have shown themselves to be ill-suited.”
Thirty years later, in 2002, he writes that “today it would be necessary for Europe and Asia to design an artificial, politically created alternative to the dollar as an international store of value. This promises to be the crux of international political tensions for the next generation.”
It’s a prescient comment, though it wasn’t Europe or Asia that designed an alternative to the dollar, but Satoshi Nakamoto. A new kind of asset money, bitcoin has a chance to unseat the super-imperial dollar structure to become the next world reserve currency.
As Hudson writes, “One way to discourage governments from running payments deficits is to oblige them to finance these deficits with some kind of asset they would prefer to keep, yet can afford to part with when necessary. To date, no one has come up with a better solution than that which history has institutionalized over a period of about two thousand years: gold.”
In January 2009, Satoshi Nakamoto came up with a better solution. There are many differences between gold and bitcoin. Most importantly, for the purposes of this discussion, is the fact that bitcoin is easily self-custodied and thus confiscation-resistant.
Bitcoin, however, is notably easy to self-custody. Any of the billions of people on earth with a smartphone can, in minutes, download a free and open-source Bitcoin wallet, receive any amount of bitcoin, and back up the passphrase offline. This makes it much more likely that users will actually control their bitcoin, as opposed to gold investors, who often entered through a paper market or a claim, and not actual bars of gold. Verifying an inbound gold payment is impossible to do without melting the delivery bar down and assaying it. Rather than go through the trouble, people deferred to third parties. In Bitcoin, verifying payments is trivial.
In addition, gold historically failed as a daily medium of exchange. Over time, markets preferred paper promises to pay gold — it was just easier, and so gold fell out of circulation, where it was more easily centralized and confiscated. Bitcoin is built differently, and could very well be a daily medium of exchange.
In fact, as we see more and more people demand to be paid in bitcoin, we get a glimpse of a future where Thier’s law (found in dollarizing countries, where good money drives out the bad) is in full effect, where merchants would prefer bitcoin to fiat money. In that world, confiscation of bitcoin would be impossible. It may also prove hard to manipulate the spot price of bitcoin through derivatives.
If governments cannot kill bitcoin, and it continues its rise, then it stands a good chance to eventually be the next reserve currency. Will we have a world with bitcoin-backed fiat currencies, similar to the gold standard? Or will people actually use native Bitcoin itself — through the Lightning Network and smart contracts — to do all commerce and finance? Neither future is clear.
But the possibility inspires. A world where governments are constrained from undemocratic forever wars because restraint has once again been imposed on them through a neutral global balance-of-payments system is a world worth looking forward to. Kant’s writings inspired democratic peace theory, and they may also inspire a future Bitcoin peace theory.
Under a Bitcoin standard, citizens of democratic countries would more likely choose investing in domestic infrastructure as opposed to military adventurism. Foreigners would no longer be as easily forced to pay for any empire’s wars. There would be consequences even for the most powerful nation if it defaults on its debt.
Developing countries could harness their natural resources and borrow money from markets to finance Bitcoin mining operations and become energy sovereign, instead of borrowing money from the World Bank to fall deeper into servitude and the geopolitical equivalent of subsistence farming.
Finally, the massive inequalities of the past 50 years might also be slowed, as the ability of dominant capital to enrich itself in downturns through rent-seeking and easy monetary policy could be checked."